Hotel, Tourism and Leisure. Special Market Reports Issue 9 - FRANCE

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1 Hotel, Tourism and Leisure Special Market Reports

2 STORY HIGHLIGHTS: During 2012, the French hotel industry experienced a slight decline in occupancy in 2012 (-1.3 percentage points vs. 2011) to reach about 65 % according to industry statistics. At the same time, the French hotel investment market remains one of the most dynamic as France ranked second in Europe. With 82.8 million tourists in 2011, France stands as the leading destination worldwide whilst in terms of international tourism receipts, France ranks only second in Europe after the UK, with US$ 56.4 billion. Introduction On January 1st 2012, the overall French hotel supply accounted for graded hotels or a total of rooms. For 2013, based on our estimates, the French market should shows a slight increase in room supply, showing a positive dynamic. This trend is supported by the on-going development of hotel chains, which are still expanding their network mainly on a franchise basis. Overall the average hotel chain penetration rate in France, the highest in Europe reaches 41% of the room counts. Two leading groups groups, Accor and Louvre Hotels, are estimated to represent some 2/3 of total branded rooms. Still in 2012, the French hotel industry experienced a slight decline in occupancy in 2012 (-1.3 points compared to 2011 which proved to be a dynamic year) with 65.4 % according to the first estimations. However, market performances registered by the French hotel industry were resilient in the unfavourable economic context of Hence, growth in RevPAR for that same year remained positive although moderate at +1.8% for versus previous year. This performance in RevPAR is driven by a +3.8% growth in ADR to reach respectively 86 (ADR) and 56 (RevPAR). It is fair to say that ADR was pulled up by the upscale and luxury segments. An industry driven by Paris undoubtedly, the French hotel industry remains driven by Paris which benefits from a favourable combination of high occupancy and continuing increase of ADRs. In this favourable context, Paris has achieved or planned upgrades of many hotel facilities in the 4 and 5 star segments. Following this trend, the number of rooms in Parisian Palaces has increased by 50% since There had been 4 significant openings in the 4/5 star segment between January 2011 and October 2012, and major upscale projects are planned over the next 5 years, including major developments in the inner suburbs.

3 Despite the depressed economic context in Europe, Paris-Ile de France recorded 68.3 million bed nights in 2012 and a 0.3% increase versus previous year. This was made possible through a growth in foreign visitors (+1.5 points). According to STR Global, Paris reached 78.8% occupancy in 2012 (-0.2 ppts vs 2011), performed especially well and managed to remain quite stable. RevPAR for full year 2012 reached 256 (+ 8.5 % vs 2011), due to 8.7% increase in ADR. Hotels in other French regions registered a minor decrease in occupancy that was not compensated by a proportional increase in ADR. As a result, RevPAR dropped marginally. It is our opinion that the French hotel market is dual with, in one hand Paris and the top ten metros where demand remains steady and, in the other, secondary market that are strongly affected by the economic crisis. Current and future trends in development The new star rating system, implemented gradually since 2009, has contributed to improve the overall quality of supply. On January 1st of 2012, the star hotel supply represented some 45.5% of the overall room capacity, i.e. 5.4 % more than 2011, with a 4-5 star segment totalling 15.2% of the global room stock. This trend is anticipated to last, given recent openings and projects planned for the next years. The weakest properties are progressively exiting the market. A significant share of these properties is made of small sized dated independent hotels, located in unattractive locations and the most often positioned in the economy segments. These terminations are mainly due to the inability to meet the requirements of the new star rating system and an economic model unable to create value, thus preventing any transmission of assets. Like other segments of the real estate, hotel investment is a two-spied market. While activity remains buoyant for hotel assets benefiting from "prime" locations, hotels displaying lower performance have become less and less attractive. Hence, Paris and Ile de France region concentrate more than half of these investments, remaining the most attractive markets for foreign investors, thanks to transactions of trophy assets in Paris.

4 A very dynamic market for hotel investment Whilst most of country s industries are severely hit by the crisis, France remains one of the most dynamic markets for hotel transactions in Europe. With 1.8 billion invested in 2012, the market has increased by 59% versus previous year. The most significant sales agreements sealed in 2012 include major assets from the Groupe du Louvre portfolio, a subsidiary of Starwood Capital to a Qatari investor, 165 hotels under B&B brand to a consortium led by Land Walls, the sale of four Marriott properties belonging to Whitehall Fund to Host Hotels and Resorts The year 2012 has also seen a rise of foreign investors activity. As a result, the volume of domestic investment represented only 53% of the total (vs. 68% in 2011 and 94% in 2009). However, the increased uncertainty in financial markets has laid banks to be more selective and debt has become more difficult to source for new built projects. As a result, developers focus on existing assets and selected opportunities in Paris and city centers of top ten metros. In 2012, cities above inhabitants have concentrated almost half of the new created room capacities. We anticipate that this trend should remain in Outlook for 2013 After the strong recovery in 2011, the slowdown of the French economy over the past months combined with the uncertain outcomes of budgetary pressure has called for cautious forecasts. Indeed, French economy remained at a standstill in 2012 as GDP growth was estimated at 0 % for the whole year. The hospitality industry s performances have proven to be directly linked to the changes in current GDP. The perspective for 2013 is rather worse than in However, we anticipate a slower growth in RevPAR around +2.0%, in relation to the poor performance in GDP anticipated by economists, as we anticipate that the context will be less favourable to increase ADRs. In 2013 still, the French market should remain attractive for hotel investment. As investors are now looking for secured property, Paris, the top ten metros, the French Riviera and selected Alpine resorts should be seen as most attractive destinations for real estate driven properties. In total, France will remain characterized by a two-gear hotel market: On one hand, Paris Region and to a lesser extent the French Riviera, driven by international business and leisure dynamics has proven to be solid markets. Interest from investors remains strong and demand is expected to remain solid, supported by sustained rates and resisting the market downturn On the other hand, regional markets are more volatile. They perform at a lower level as they are often impacted by seasonality and rely more on the domestic market. However, regional markets could be looked at opportunistically if well located in a city center and/or in a perspective of market renewal. Philippe Doizelet, Managing Partner pdoizelet@horwathhtl.com (Paris) Beatrice Montagnier, Director, bmontagnier@horwathhtl.com (Paris) (Dakar)

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