Hotel Market Germany. compared to. from expert s point of view

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1 CBRE MarketView Hotel Market Germany / compared to Investment turnover Prime yield Hotel ADR Occupancy RevPAR, STR Global 2011 from expert s point of view Olivia Kaussen, Head of CBRE Hotels Germany & CEE: Germany remains one of the most important hotel investment markets in Europe. The transaction volume could have been significantly higher if markets had not experienced such turbulences due to the sovereign debt crisis in the Eurozone and difficulties in the banking sector in the second half of the year. Demand in 2011 focused on core assets in top locations as we registered a number of largescale deals of first class hotels. Investments concentrated mainly on Frankfurt/Main and Berlin. Due to the attractiveness of the German market we expect the transaction volume to remain stable in 2012 despite on-going market turbulences OVERVIEW Economy According to current figures of the Federal Statistical Office, the German economy contracted for the first time in almost three years towards the end of This already expected development was mainly caused by the insecurities arising from the European debt crisis and the worldwide recession. In the fourth quarter of 2011, the overall Gross Domestic Product (GDP) decreased by 0.2% quarter-on-quarter, after adjustments for price, seasonal and calendar effects. For the entire year of 2011, however, an economic growth of 3.0% has been registered, which demonstrates the strength of the German economy, also in turbulent times. The overall economic performance in the last quarter of 2011 was achieved by 41.6 million employees. The increase by 560,000 people (1.4%) in a year-on-year comparison is proof for the continuously robust condition of the German employment market, which is currently showing the best results since the reunification. Correspondingly, the optimism regarding a brisk recovery of the German economy is further increasing. The most recent results of surveys on economic expectations underpin this development: the ZEW indicator grew significantly in February 2012 and shows positive results for the first time since May The ifo business climate index brightened up for the fourth time in a row and the relatively optimistic GfK consumer confidence index also signals that from the point of view of market participants the current economic dent in Germany is unlikely to be reinforced. The Consensus forecast expects a GDP growth of 0.6% for 2012, whereby the domestic demand will back up the economic recovery owing to very good labour market conditions and a decreasing trend in unemployment rates. The extremely robust fundamental data of the German economy are mirrored in the hospitality industry: in 2011, the accommodation sector showed a real growth in turnover of 2.4% year-on-year and 394 million overnight stays, a plus of 3.6%. Hotel investment market The brisk investment activities, particularly in the first half of 2011, have led to positive results for the German hotel investment market. A transaction volume of 1.1bn was achieved, an increase of 24% in comparison to Investment turnover of institutional investment products (transactions above 10m) also increased by almost 19% to approximately 950m. Hotel investment volume accounted for a share of almost 5% of the overall investment market of commercial properties in Germany (2011: 22.6bn). In particular international investors were active and accounted for around 60% of the investment volume. After portfolio sales had accounted for a share of almost 50% of the overall market in 2010, single asset transactions dominated in 2011 with 83%. For the first time, private investors were the most important purchaser group, accounting for around half of the transaction volume. Currently, the net initial yields for hotels with operating leases range between 6.00% and 7.50%, depending on location and quality of the property, covenant of the tenant and terms of the lease. Hotel market - key data Annual change Investment volume, million , % Prime yield Hotel, % %-Pts. ADR, % Occupancy, % % RevPAR, %, STR Global

2 2011 MarketView Hotel market Germany Tourism in Germany 2011 According to the recently published study Wirtschaftsfaktor Tourismus published by the Association of the German Tourism Industry, tourism has a high economic significance in Germany. The study states that in 2010 around 2.9m people (7% of all employees) work in the tourism industry. In total, 4.4% of the German gross domestic product (almost 100bn) were generated by the tourism industry. After the record year of 2010 in which the number of overnight stays in Germany reached a historical high of million (in all accommodation types with more than nine beds), the positive trend continued in 2011 despite the worsening economic situation. According to preliminary results of the Federal Statistical Office, the number of overnight stays in all German accommodation types increased by around 3.6% to 394.1m year-on-year. Overnight stays by domestic and international guests increased by 3% and 6%, respectively. Even though the number of overnight stays generated by international guests increases at a higher pace, domestic guests still accounted for almost 90% of all overnight stays in This underpins the increasing international importance of Germany as popular travel destination, but also the fact that the main focus remains on domestic travellers. In a national comparison, Berlin ranks first by far, reaching an annual record of 22.4 million overnight stays. ranks second (11.7 million), followed by (9.5 million) and Frankfurt (6.4 million). In 2011, the passenger volume of German airports increased by 4% year-on-year, which is further evidence for the dynamic tourism market of Germany. With a total of around 199 million passengers (including transit traffic), almost 8 million more passengers were registered compared with the previous year. The main reason for this is a significant increase in inner- European flights of 8%. Flights within Germany increased by 2% whereas a slight drop of 0.4% was registered in international flights in comparison with the previous year. Corresponding to the slightly weaker German economy towards the end of the year 2011, the growth rates of passenger figures also fell slightly in the course of the year. Comparing the volumes of the largest German airports in 2011, the largest number of passengers was recorded in Frankfurt/Main with 56.3 million, followed by with 37.6 million and Berlin (Tegel and Schönefeld) with 24.0 million passengers. Page 2 Overnight stays across all accommodation types Germany ,000 1,000 63,800 48,200 53,000 54,800 56,500 54,800 60, , , , , , , , , , , Source: Federal Statistical Office Source: Federal Statistical Office Source: ADV domestic demand international demand Overnight stays across all accommodation types Germany Top Berlin 22,400 11,700 9,500 Frankfurt/Main 6,400 Cologne 5,000 Dusseldorf 3,800 Stuttgart 2,900 Dresden* 2,800 Nuremberg 2,500 Hanover* 2, ,000 10,000 15,000 20,000 25,000 1,000 Passenger volume at German airports Top Frankfurt/Main Berlin total 24.0 Dusseldorf Cologne/Bonn 9.6 Stuttgart 9.5 Hanover 5.3 Nuremberg 3.9 Frankfurt Hahn million

3 RevPAR annual comparison Top 5 Germany Berlin Dusseldorf Frankfurt Source: STR Global Source: STR Global RevPAR annual change Top 5 Germany Berlin Dusseldorf Frankfurt/ Main (5) Source: STR Global Berlin Dusseldorf Frankfurt % Historic ADR development Top 5 Germany Hotel market Germany According to the Federal Statistical Office, hotels, guesthouses and B&B hotels in Germany increased their turnover nominally by 3.8% (2.4% in real terms) in According to STR Global, the German lodging industry increased the revenue per available room (RevPAR) by approximately 4% (2010: +19%) despite the weakening of the economies throughout Europe, particularly in the second half of The results of 2011 are comparable to those in 2008, i.e. before the crisis. This is remarkable because the trade fair business, which is very important for some cities, was rather weak in After the lodging industry had to face large drops in RevPAR in 2009, occupancy rates and average daily rates (ADR) rapidly recovered in all markets in The positive trend, even though at a more moderate pace, continued in In a European comparison, recorded a RevPAR of which is above the European average of 81.60, while the results in ( 75.69) and Frankfurt/Main ( 77.08) were slightly below average. Dusseldorf ( 66.85) and Berlin ( 59.67), on the other side, lag behind. Berlin has the largest supply of hotels in Germany and registered more than 18.8 million overnight stays in hotels in 2011 (more than 22.4 million in all accommodation types). This corresponds with a year-on-year increase of 9% (7.5%). The number of international guests increased by 9.2% (8.7%). Nevertheless, Berlin still ranks last among the German Top 5 because of the large supply. According to STR Global, Berlin was the only one of the Top 5 cities that registered a slight drop in RevPAR by 1.1% to The average occupancy was 69.5% (+0.62 %-points) and ADR reached (-2%). Berlin has a supply of approximately hotel beds that are distributed over 613 establishments. Among the most important new openings in 2011 was the Eurostars Hotel (211 rooms) and the Motel One Hauptbahnhof (514 rooms). Currently, a further approximately 7,700 rooms are projected, half of which are already under construction. Dusseldorf registered a RevPAR growth of 6% to in Reasons for this development are the increase in occupancy by 1.5 %-points to 61.93% as well as the growth in ADR from to (+3.4%), the largest growth among the Top 5 cities. In general, the Dusseldorf hotel market is strongly tied to the trade fair calendar: 2011 was an important year with more than 38 trade fairs and events, recording more than 28,000 exhibitors and more than 1.4 million visitors. The largest trade fairs were boot (252,000 visitors), EuroShop (106,000 visitors), Interpack (165,000 visitors), Caravan Salon (179,000 visitors) and MEDICA (130,000 visitors). Last year s result was also strongly influenced by major events such as the Eurovision Song Contest and the FIS Cross-Country World Cup. Page MarketView Hotel market Germany

4 2011 MarketView Hotel market Germany Despite the positive trend, the RevPAR of in 2011 was below the result of pre-crisis year 2008 ( 67.97), during which the world s largest print media fair DRUPA took place. Last year, the Radisson Blu Scandinavia Hotel was completely refurbished whilst in operation. Important new openings, however, did not take place. Only around 680 additional rooms are in the pipeline, 584 of which are already under construction. Last year, registered a RevPAR of 83.63, the highest of all German cities, despite the moderate growth rate. In comparison with other key markets, the RevPAR growth in was rather weak, which is partly due to the huge growth of the previous year (RevPAR: +31.2%). Despite a decrease in the ADR by - 0.9% to , the RevPAR grew by 0.4% owing to the increase in occupancy by 1 %-point to 73.3%. Even though there were no large, international trade fairs, the sector still contributed 10% of the overnight stays to the entire volume. Noteworthy new openings of hotels in 2011 were the two Motel One hotels at the Deutsches Museum with 469 rooms and in Garching with 170 rooms. The4-starSuperiorHotelLeonardoRoyaloffering424 rooms also opened in the first half of the year. In the second half, the Marriott Courtyard (225 rooms) and the Residence Inn by Marriott (122 rooms) at the Ostbahnhof opened. Further approximately 2,000 rooms are currently in the pipeline, of which 1,226 are still in planning. As an international finance centre, Frankfurt is almost exclusively focused on business travellers. This is reflected by the relatively low occupancy during weekend and holiday periods. Nevertheless, Frankfurt registered a slightly higher occupancy rate of 66.2% (+0.8%) in 2011 than in the previous year. The ADR reached a level of , an increase of 2.9% in comparison with 2010, and the highest room rate among the Top 5 cities. Frankfurt achieved a good RevPAR of The city on the River Main also profited from a successful trade fair year. In Frankfurt, 17% of the entire volume of overnight stays is related to the trade fair industry. In addition, Frankfurt airport registered an increase in passenger volume of around 6% in comparison to In 2011, around 1,500 new rooms came to the market. In September, the 219 room 5-star hotel Jumeirah opened in the City district. In addition, the Hilton Hotel Frankfurt Airport and the Garden Inn by Hilton (together 583 rooms), both of which are included in THE SQUAIRE development, opened in late Further hotels with approximately 1,600 rooms are projected, of which almost 1,000 are already under construction. Page 4 Historic occupancy development Top 5 Germany % Berlin Dusseldorf Frankfurt Source: STR Global Hotel future supply ( ) Top 5 Germany number of rooms 8,000 7,000 6,000 5,000 4,000 3,000 2,000 1,000 0 Berlin Dusseldorf Frankfurt rooms under construction rooms planned Motel One Deutsches Museum Copyright Motel One GmbH 25 hours HafenCity Copyright 25hours Hotel Company Hafencity GmbH

5 Investment volume by type of use 5% 36% 5% 4% 3% Retail* Investment turnover 2011: 22.6 billion 47% Hotel investment volume by type of investor* Private Investor Asset Manager/ Fund Manager Corporates Closed-ended Fund Property Company Open-ended Fund/ Special Fund Insurance Company/ Pension Fund Public Sector Listed Property Company/ REIT Office Development Site Hotel Industrial Others * High street retail, shopping centres, retail warehouses and retail parks *Share of investment turnover 2011, % Hotel investment volume by type of transaction Developer Portfolio transactions 17% % Sale % Purchase (60) (40) (20) Single transactions 83% According to STR Global, registered the strongest RevPAR growth among the German Top 5 cities in This development was driven by the largest increase in occupancy rate among the Top 5 cities by 3.0 %-points to 74.0%. The extension of the HafenCity, the improved flight connections to airport and the opening of the new cruise terminal Cruise Center in summer 2011 had a positive influence on the local market. Further, the city benefits from increased national and international demand. Around 80% of the hotel demand in stem from Germany. As a tourist destination, profits from business as well as leisure travellers. The ADR increased by around 2.6% to The RevPAR of 2011 was not only above the results of the pre-crisis year 2008 but also 6.8% above the result of the previous year. Currently, a total of approximately 2,165 rooms are under construction and a further 2,000 rooms are in planning. Hotel investment market With the return of the international investors, the market recorded an investment volume of around 890m in 2010, more than double of the previous year. The good results of 2010 could be further enhanced in The volume increased by 24% to 1.1bn. Overall, the commercial real estate investment market registered a year-on-year growth of 18% in 2011 resulting in a transaction volume of 22.6bn. The hotel investment market therefore accounted for around 5% of the overall market. The hotel investment market was strong in the first half of the year with a transaction volume of 580m. The main reasons for this development were the good operational results in 2010 and the willingness of banks to finance hotel transactions. The sovereign debt crisis, restrained future prospects and difficulties in the banking sector prevented large portfolio transactions in the second half. Hence, in % of the total transaction volume was accounted for by single transactions. The most active group of investors were international private investors. The vendors of the two largest portfolio transactions were hotel operators (corporates) and private equity firms. For example, NH Hoteles sold five hotels (of which three were in Germany and two in Austria) to a hotel fund of Invesco Real Estate. MSREF (Morgan Stanley Real Estate Fund) sold the InterContinental Hotel Frankfurt as part of a European portfolio to the Lebanese investor Toufic Aboukhater. Page MarketView Hotel market Germany

6 2011 MarketView Hotel market Germany Further, Accor sold two hotels to Russian investors and kept the brand Mercure. Open-ended real estate funds were inactive in the domestic market in They hardly made an appearance at all. In contrast, some closed-ended funds were active players. For example, Deutsche Immobilien Invest purchased the Grand Spa Resort A-Rosa Sylt and the Swiss Acron AG acquired the Steigenberger hotel project at the new airport in Berlin. While the main focus in 2010 was on 2- to 3-star hotels, in 2011 investors clearly preferred to buy 4- to 5-star hotels. They accounted for almost 90% of the investment volume and around 45% of all hotels sold. Due to several large single transactions, the average investment volume of hotels above 10m was around 30m per asset. This is an increase of more than 30% year-on-year. Hotel investment turnover Top 4 In 2011, the five largest German hotel markets Berlin,, Frankfurt, and Dusseldorf together accounted for almost two thirds of the total transaction volume. With more than 350m, Frankfurt was the largest hotel investment market. Noteworthy transactions were, for example, the sale of the Radisson Blu (428 rooms) to Wenaasgruppen from Norway and the sale of the Marriott Hotel (588 rooms) as part of the WestendGates to RFR Holding Deutschland GmbH. Berlin ranked second as investment market, accounting for 220m, followed by, and Dusseldorf. One of the largest transactions in Berlin was the Scandic Hotel Potsdamer Platz with 563 rooms, which was sold to the Norwegian Wenaasgruppen by SNS Property Investment from Denmark. Another large transaction was the sale of the Steigenberger Hotel project at Schönefeld airport which is located outside of the city s boundaries and therefore not included under Berlin in the chart to the right. Among the largest transactions in was the sale of the NH Hotel at the airport as well as the Renaissance Hotel in Schwabing. Development of prime yields Due to the small number of transactions and the lack of transparency, the yields can often only be estimated. The prime net initial yield in 2011 was at 6.00%, which was slightly below the prime yield of 2010 (6.25%). Reasons for this were the good location and quality of the properties sold as well as the run on core hotels in prime locations, which significantly increased in Hotels in secondary locations with variable lease or management contracts achieved yields of 7.00% to 8.00%. We assume that the yields will remain stable in The demand for core properties will remain high. Should prime luxury hotels become available for sale, the net initial yields might fall below the level of 6.00%. Page 6 Hotel investment volume by city million; cumulated Rest of Germany 41% Hotel investment turnover by size Hotel investment turnover by stars classification 5-stars 40% 5% 9% 1-star 1% 3-stars 7% 2-stars 4% Hotel investment turnover 2011: 1.1 billion Frankfurt 32% Berlin 13%

7 Selected single hotel transactions 2011 Hotel name Steigenberger Airport Hotel Berlin BBI City / Market Number of rooms Vendor Berlin 4-stars 322 ECE Acron AG Purchaser InterContinental Frankfurt Frankfurt 5-stars 770 MSREF Toufic Aboukhater Grand Spa Resort A-Rosa Sylt Sylt 5-stars 177 Deutsche Immobilien AG Deutsche Immobilien Invest Steigenberger Grandhotel Handelshof Leipzig 5-stars 177 Handelshof GmbH Privatinvestor Radisson Blu Frankfurt Frankfurt 4-stars 428 Franklinstraße GmbH & Co. KG Wenaasgruppen Alsterhof Berlin 4-stars 200 Andersen & Co. GmbH Wenaasgruppen Motel One München City Süd 2-stars 252 Büschl Unternehmensgruppe Patrizia GewerbeInvest KAG Marriott Hotel Frankfurt Frankfurt 5-stars 588 Holiday Inn Express Frankfurt City Hauptbahnhof Kempinski Hotel Gravenbruch Scandic Hotel Potsdamer Platz Citadines St. Michaelis Selected hotel portfolio transactions 2011 Portfolio name Mercure Hotels NH Hotels Frankfurt 3-stars 116 Aberdeen Immobilien Kapitalanlagegesellschaft mbh Westfälische Grundbesitz und Finanzverwaltung AG RFR Holding Deutschland GmbH Privatinvestor Frankfurt 5-stars 284 Octavian Hotel Holding Mashali Familie Berlin 4-stars 563 SNS Property Investment Wenaasgruppen 4-stars 128 GBI AG The Ascott Ltd City / Market Bad Homburg, Garmisch- Partenkirchen Frankfurt,, Classification Classification Number of rooms Vendor Purchaser 4-stars 242 Accor BSHR Investments GmbH 4-stars 513 NH Hoteles Invesco Real Estate Page MarketView Hotel market Germany

8 2011 MarketView Hotel market Germany Outlook Following high growth rates in both occupancy and ADR in 2010, the hotel market also showed good results in Some cities like even recorded above average growth rates. The absolute results are on average on 2008 levels again. For 2012 we assume low single-digit RevPAR growth rates with varying results per city. Dusseldorf, for example, will benefit from the extraordinary trade fair year in As we expect banks to continue to be restrictive lenders, we project equity investors to be very active players in We expect total hotel investment volume to be at the same level as It is likely that Germany will become increasingly attractive for international investors due to the insecurities and turbulent market and currency situation arising from sovereign debt issues in some European countries. However, we estimate that new loans for hotel real estate investments will remain limited and that in view of the strict capital requirements of banks, margins will remain high. Due to the strong demand for hotels in Germany, particularly in the core segment, we expect the prime yields to remain at 6.00%. We are of the opinion that in 2012 many vendors will think about selling their assets based on the good operational results of the last two years. Further, we expect that an increasing number of 4- to 5- star hotels will come to the market. In addition, so-called lifestyle and design hotels will continue to be popular with guests and investors. We expect that hotels run subject to management contracts will continue to attract international investor interest while German institutional investors are likely to continue to focus on hotels with operating leases and stable rental income. DEFINITIONS Prime yield The prime yield (net initial yield) is the ratio between the initial annual net rental income (rent less non-recoverable costs) and the total amount invested (purchase price plus purchaser s on-costs = gross purchase price), expressed as a percentage figure, achievable in the relevant prime location, in an asset that is in first-class condition and fully let in line with market levels. It is based both on sale & purchase contracts concluded during a period as well as on the market view of the local investment department. RevPAR The RevPAR ( Revenue per Available Room ) is calculated by dividing total rooms revenue for a certain period by the total number of rooms available during that period. ADR The ADR ( Average Daily Rate ) is equal to the net average rate charged per occupied room and is calculated by dividing total rooms revenue for a certain period by the total number of rooms occupied during that period. It may also be referred to as ARR. Disclaimer 2012 CBRE Information herein has been obtained from sources believed reliable. While we do not doubt its accuracy, we have not verified it and make no guarantee, warranty or representation about it. It is your responsibility to independently confirm its accuracy and completeness. Any projections, opinions, assumptions or estimates used are for example only and do not represent the current or future performance of the market. This information is designed exclusively for use by CBRE GmbH clients, and cannot be reproduced without prior written permission of CBRE GmbH. Page 8 For further information: CBRE Hotels Germany Olivia Kaussen Senior Director Head of Hotels Germany & CEE t: e: olivia.kaussen@cbrehotels.com Adrian Flueck Senior Analyst t: e: adrian.flueck@cbrehotels.com CBRE Research Germany Dr. Jan Linsin Senior Director Head of Research Germany t: e: jan.linsin@cbre.com Tobias Brandt Senior Analyst t: e: tobias.brandt@cbre.com We would like to thank Ms. Constanze Maas, trainee at CBRE Hotels, for her assistance in preparing this report.