abc Hotel Investor Sentiment Survey Cap Rate and IRR requirements now level with the previous market peak Issue 22, May 2011

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1 abc Real value in a changing world Hotel Investor Sentiment Survey Issue 22, May 2011 Cap Rate and IRR requirements now level with the previous market peak Tightening of cap rate and IRR requirements most evident in EMEA and Asia Pacific whereas firmer initial yields are expected in the Americas in the next six months Upbeat global trading sentiment with expectations for the short term nearly doubling, driven by significant improvements in the Americas and EMEA regions

2 Hotel Investor Sentiment Survey Buy, build, hold, sell? May 2011 Contributors Arthur de Haast Global CEO Arthur Adler CEO, Americas Mark Wynne-Smith CEO, EMEA Scott Hetherington CEO, Asia Craig Collins CEO, Australasia Karen Wales Senior Vice President Research, Asia Pacific Katleen van den Brande Vice President Research, EMEA Lauro Ferroni Research Associate, Americas Larissa Esser Global Analyst Jones Lang LaSalle Hotels, the first and leading global hotel investment services firm, is uniquely positioned to provide the depth and breadth of advice required by hotel investor and operator clients, through a robust and integrated local network. In 2010, Jones Lang LaSalle Hotels provided sale, purchase and financing advice on $4.1 billion worth of transactions globally. In addition, advisory and valuation services were provided on over 1,000 assignments. The global team comprises over 225 hotel specialists, operating from 39 offices in 20 countries. The firm s advice is supported by a dedicated global research team, which produced 70 publications in 2010 in addition to client research. Jones Lang LaSalle Hotels services span the hospitality spectrum; from luxury single assets and large portfolios to select service and budget hotels, resorts and pubs. Services include investment sales, mergers and acquisitions, capital raising, valuation and appraisal, asset management, strategic planning, operator selection, management contract negotiation, consulting, industry research and project development services. Jones Lang LaSalle Hotels clients have access to the resources of its parent company, Jones Lang LaSalle (NYSE: JLL).

3 Hotel Investor Sentiment Survey Buy, build, hold, sell? May Global overview Highlights from the survey Strong increase in confidence about future trading with global sentiment for short term trading nearly doubling (from 11.7% to 22.2% 1 ) and the medium term outlook also turning positive again (up 5.9 points). Positive trading expectations were mainly driven by improved sentiment in EMEA and the Americas. Pronounced tightening in cap rate and IRR requirements mainly driven by Asia Pacific and EMEA, now both level with previous market peak (October 2007). Little change in overall global investment intentions, however build sentiment is surging in Asia Pacific and buy sentiment is up significantly in the Americas. Robust recovery of investor sentiment Performance expectations for short term trading (6 months) exhibited strong growth continuing the trend initiated two years ago. Short term sentiment rose to 22.2%, nearly double the level of the previous survey with the major gateways still very much in favour at 44.7% (up 3.6 points). The global upsurge was mainly driven by remarkable improvements in short term sentiment in the Americas (up 13 points) and EMEA (up 12.2 points) whereas sentiment for Asia Pacific showed little change (up 1.5 points) as conditions seem to have stabilised, following a strong recovery earlier in the cycle. Global trading performance expectations 2000 to 2011^ Net Balance 60% 40% 0% - Despite the shocks caused by the earthquake in Japan and political turmoil in the Middle East, investors have expressed enhanced confidence in the global hotel markets. Global economic expansion continues on track with world output expected to grow by 4.4% in The two-speed economic recovery that began in 2009 still characterises the outlook, with emerging economies expected to grow three times faster than developed markets. Reflecting this, investor sentiment is well above the global average for both short and medium term expectations in markets like Sao Paulo and Rio de Janeiro (54.4% and 60%), New Delhi (45.2% and 54.5%), Shanghai (38% and 41.4%) and Moscow (48.5% and 53.1%). Global trading performance expectations^ Global Major Gateways Americas EMEA Asia Pacific -80% -60% -40% - 0% 40% 60% 80% Net Balance Medium Term Short Term Major gateways include Barcelona, Chicago, Hong Kong, London, Los Angeles, Milan, Mumbai, Munich, Moscow, New York, Paris, Rio de Janeiro, Rome, San Francisco, Shanghai, Sydney, Tokyo, Washington D.C. and Vancouver Medium term sentiment (2 years) increased by 5.9 percentage points, compared to a 2.7 points contraction six months ago and continued to weigh strongly in favour of the major gateways (61.1%). The Americas continues as the highest of all three regions (48.5%) whereas sentiment increased strongest in EMEA (9.8 points). -40% -60% Sep-00 Jun-01 Jun-02 Jun-08 Oct-08 Short Term Medium Term 1 Net positive balance; percentage of respondents who respond positively minus the percentage of respondents who respond negatively 2 IMF Forecast

4 2 Hotel Investor Sentiment Survey Buy, build, hold, sell? May 2011 Pronounced falls in cap rate and IRR requirements Fuelled by upbeat trading sentiment, both cap rate and IRR expectations have tightened further by 60 and 80 basis points respectively with reductions most evident in Asia Pacific and EMEA. Cap rate expectations now average 7.7% and leveraged IRRs 16.2%, level with the previous market peak (October 2007). Investment Yield Requirements^ Leveraged IRR for New Acquisition (%) Cap Rate (Initial Yield) for New Acquisition % Short Term Cap Rate Trend Americas 18.8% 7.8% Lower EMEA 14.3% 7.3% Neutral Asia Pacific 16.2% 8.0% Neutral GLOBAL 16.2% 7.7% Neutral ^Regional averages are weighted by the number of responses Source: Jones Lang LaSalle Hotels Hotel Investor Sentiment Survey Expectations for leveraged IRRs are lowest in EMEA (14.3%) followed by Asia Pacific (16.2%) and the Americas (18.8%), whereas cap rates requirements are higher in Asia Pacific (8%) than the Americas (7.8%). In EMEA, anticipated cap rates average 7.3%, a 40 basis points reduction compared to November 2010, contrary to the previously expressed trend expectation (higher). Overall, cap rates are expected to remain neutral over the next six months although firmer initial yields are anticipated in the Americas in the short term. Global investment yield expectations 2000 to 2011^ 25% 15% 10% Initial yield requirements range from under 6.5% in London, Paris, New York, Munich and Hamburg to 10% and over in various markets across Latin America such as Cancun/Riviera Maya, Lima, Bogota, Santiago and Rio de Janeiro. Any assets that are brought to market in prime locations such as London, Paris and New York attract multiple bidders pushing values upwards close to record levels. In contrast, perceived risks related to lack of transparency and security concerns pushes out yield and IRR requirements in various markets in Latin America and Southeast Asia (Manila / Bangalore). Global cap rate (initial yield) trend over next six months^ Global Asia Pacific EMEA Americas -10% -8% -6% -4% -2% 0% 2% 4% 6% 8% 10% Net Balance (Positive/Higher and Negative/Lower) Surging build sentiment in Asia Pacific Overall, there has been little change in global investment intentions. Buying continues as the most favoured investment strategy (37.4%) particularly in major gateway markets in the Americas and EMEA, giving way to intensified competition and its inevitable impact on pricing. Hold and sell sentiment were reduced by 3.7 and 1.8 percentage points to 33.3% and 11.2% respectively. Build sentiment experienced an upsurge of 5.2 points, mainly driven by respondent s inclination to build assets in Asia Pacific. The region now accounts for the top twelve markets for development. 5% Jun-01 Jun-02 Jun-08 Oct-08 Leveraged IRR % Cap Rate (Initial Yield) %

5 Hotel Investor Sentiment Survey Buy, build, hold, sell? May Global short term investment intentions 2000 to 2011^ 60% 50% 40% 30% 10% 0% Sep-00 Jun-01 Jun-02 Buy Build Hold Sell Improving market conditions, strengthening trading fundamentals and investor confidence have led to an enhanced position for global sellers. Buy sentiment is strongest in the Americas (59%), followed by EMEA (35.4%) and Asia Pacific (27.7%). The ratio of buyers to sellers rebounded from 2.8:1 to 3.3:1 on a global basis, ranging from 10.6:1 in the Americas to 2.7:1 in EMEA and 2.2:1 in Asia Pacific. This reflects recent transaction trends as the Americas experienced an upswing in year-to-date May 2011 volumes of 140%, compared to the same period in 2010, continuing as the most liquid region globally. The highest rated buy market globally was Miami (76.3%); having posted one of the highest RevPAR growth rates in the US in 2010, leading to a significant increase in investor interest. Top ten global markets - short term investment intentions Buy Build Hold Sell 1 Miami Taipei Prague Spanish Resorts 2 New York Manila Macau Zagreb 3 Los Angeles New Delhi Dallas Jeddah 4 Sao Paulo Ho Chi Minh City French Riviera Abu Dhabi 5 Rio de Janeiro Chendgu Riyadh Doha 6 Lima Mumbai Cairo Riyadh 7 Vancouver Jakarta Lisbon Dubai 8 Pacific Northwest Bangkok Vienna Budapest 9 Denver Kuala Lumpur Guangzhou Dublin 10 San Francisco Hangzhou Fiji Cairo Source: Jones Lang LaSalle Hotels Hotel Investor Sentiment Survey Jun-08 Oct-08 Over the next six months, potential buyers of hotel assets globally include owner/operators (29.9%), private equity /real estate funds (25.9%), developers (11.9%) and private investors (10.4%) whereas sellers include private equity/real estate funds (39.8%), developers (14.3%), owner/operators (14.3%) and institutions (12.3%). Sell sentiment is strongest in EMEA with 13.1%, and lowest in the Americas with 5.6%. MENA dominates the top ten markets with six slots, and is ranked highly for Jeddah (44.4%), Abu Dhabi (44.4%) and Doha (44.4%). Other EMEA markets where sell sentiment is high include the Spanish resorts (61.1%) and Zagreb (50%) where both markets have been struggling with subdued demand, leading to decreased rates in order to attract visitors. Private equity/real estate funds (18%) and institutions (11.1%) were identified as the most probable sellers of hotel assets in the region. Building sentiment experienced an upsurge in Asia Pacific (up 10.3 points) to 26.2%, and is now well above the long term average. Particularly owner/operators (18.9%) seem to be very keen on developing hotels in markets such as Taipei (48.1%), Manila (44%), New Delhi (41.4%) and Ho Chi Min City (40.7%). Global investor profile - short term investment intentions^ 40% 30% 10% 0% Buy Build Hold Sell Developer Institution Listed REIT Owner operator Private Private equity / RE Fund Other

6 4 Hotel Investor Sentiment Survey Buy, build, hold, sell? May 2011 Global short term investment intentions^ Global preferred asset type^ Global Global Americas Americas EMEA EMEA Asia Pacific Asia Pacific 0% 40% 60% 80% 100% Buy Build Hold Sell 0% 40% 60% 80% 100% All Grades Luxury Upscale Midscale Budget Serviced Apts Note: Serviced Apartments does not include the Americas due to a lack of this property type in the region Upscale assets continue to be in favour with 30.4% followed by midscale (20.8%), Luxury (20.2%), all grades (15.2%) and budget (8.9%). Compared to our previous survey, the midscale and budget segments have sparked renewed investor interest with sentiment increasing by 5.6 and 2.6 percentage points to 20.8% and 8.9% respectively. Interest in luxury and upscale marginally decreased, while investor appetite for all grades declined 5.8 points to 15.2%. Nearly half of respondents in the Americas indicated an investment preference for upscale properties, particularly in prime urban locations as they seek to benefit from attractive acquisition prices relative to replacement cost. In EMEA, upscale and midscale assets were favoured, although more than 25% of respondents proved willing to consider all grades. In Asia Pacific sentiment for luxury assets prevailed, particularly in markets where build sentiment was also strongest suggesting that some new high-end hotels could soon be planned.

7 Hotel Investor Sentiment Survey Buy, build, hold, sell? May Americas overview Highlights from the survey Investor confidence continues to strengthen across the Americas; hotel transaction activity increased by 140% through May 2011 from the same period last year. Investors indicated a notable improvement in performance sentiment for both the short term and medium term, with sentiment for medium-term trading positive for all 31 markets in the survey, a level of buoyancy not seen since our December 2006 survey. Investors leveraged IRR requirements remained unchanged at 18.8%, while expected going-in cap rates (initial yields) compressed by an additional 30 basis points to 7.8% in the Americas. The proportion of respondents signalling buy as their dominant investment intention increased to 59.0%, representing a six-year high. Hotel investor sentiment continues to strengthen According to our most recent survey, investor sentiment continued to strengthen across the Americas. Survey respondents indicated a notable improvement in sentiment both for the short term (six months) and medium term (two years), with a positive sentiment for short-term trading in 26 of the 31 markets tracked (83.9%) and a positive sentiment for all 31 markets for medium-term trading, a level of confidence not seen since December Revenue per available room (RevPAR) has recorded positive year-over-year growth in most markets across the Americas. The net balance 1 of investors short-term hotel performance expectations marked a continued increase, reaching 32.4%, its highest level since June Similar to investors positive short-term hotel performance expectations, the medium-term outlook increased to 48.5%, slightly surpassing the previous peak of 48.3% in our April 2005 survey, confirming the growing assurance of investors across the Americas which has already resulted in a significant a boost to hotel transaction volume. Investor sentiment is highest for major gateway markets. San Francisco, Los Angeles, New York and Washington, D.C. exhibit the highest short-term sentiment in the U.S. at a net balance of over 70%. Chicago showed the greatest improvement in investors short-term performance outlook. For the medium term, investors outlook is most positive for Los Angeles, San Francisco, Miami, New York and Boston, driven by these markets high barriers to entry and prominence as top leisure and business destinations. Continuing the positive outlook for the Canadian markets in the survey, Toronto is the favoured market for both the short and medium term. As a key gateway city and Canada s financial centre, overall trading performance expectations are strongest for the Toronto market. Americas trading performance expectations 2000 to 2011^ Net Balance 80% 60% 40% 0% - -40% -60% Sep-00 Jun-01 Jun-02 Jun-08 Short Term Medium Term In Mexico, investors expressed a positive medium-term outlook for Mexico City. Sentiment for both Los Cabos and Cancun has shown positive improvement as consumer confidence in the U.S., Mexico s main source market, grows and the demand for leisure incentive travel increases. Investors expressed flat short-term sentiment for hotel performance in the Caribbean; however the medium-term sentiment improved by a lofty 42.3 percentage points. This indicates investors expectation that Caribbean markets will experience a dramatic improvement from pent-up demand for leisure travel. Further enforcing the positive outlook for the South American markets, sentiment for both the short and medium term marked improvement. Consistent with the previous survey, São Paulo and Rio de Janeiro reported the highest sentiment, both at 54.5% for the short-term and 60.0% for the medium-term. Domestic demand is booming, resulting in significant hotel investment opportunities. Investors now have a positive short-term outlook for Buenos Aires, with a short-term sentiment at 11.1% compared to -5.9% in the November 2010 survey. Lima and Bogotá both saw an increase in investor sentiment for the medium term. 1 Net Balance is the percentage of respondents who respond positively minus the percentage of respondents who respond negatively.

8 6 Hotel Investor Sentiment Survey Buy, build, hold, sell? May 2011 Yield requirements contract Respondents leveraged IRR requirements remained largely unchanged at 18.8% and expected going-in cap rates (initial yields) compressed by an additional 30 basis points to 7.8% in the Americas. Going-in cap rates are not far above their 7.7% low point surveyed in our November 2006 report. This is the result of cash flows being at or near trough levels, which allows investors to buy at low cap rates off of in-place earnings, as well as REITs using their low cost of capital to continue to buy hotels at relatively low cap rates. Overall expectations for going-in cap rates have decreased and are expected to continue to contract over the next six months. Across markets surveyed in the U.S. and Canada, the lowest leveraged IRR requirements continued to be reported for New York (15.9%) and Washington, D.C. (16.9%) driven by the markets key gateway status. Among U.S. cities with the highest IRR expectations are Orlando, Phoenix, Tampa and Dallas, due to investors softer outlook for performance growth in these markets and the lower barriers to entry. Leveraged IRR expectations averaged 19.8% for the three cities surveyed in Canada, with Toronto lowest at 19.4%. Investors target cap rates marked a decrease in most markets surveyed across the U.S. and Canada. Respondents indicated the lowest cap rate expectations for New York (6.3%), Washington, D.C. (7.1%) and Boston (7.2%), indicative of the strong investor interest in these markets. Americas trading performance expectations Americas Average^ Atlanta Boston Chicago Dallas Denver Hawaii Houston Los Angeles Miami New York Orlando Pacific Northwest Philadelphia Phoenix San Diego San Francisco Tampa Washington D.C. Montreal Toronto Vancouver Bogota Buenos Aires Caribbean Lima Rio de Janeiro Sao Paulo Santiago Cancun/Riviera Maya Los Cabos Mexico City -100% -80% -60% -40% - 0% 40% 60% 80% 100% Net Balance Short Term Medium Term ^Weighted by the number of responses Americas investment yield expectations 2000 to 2011^ 30% 25% 15% 10% 5% Jun-01 Jun-02 Jun-08 Oct-08 U.S./Canada Leveraged IRR U.S./Canada Cap Rate (Initial Yield) Mexico/Caribbean/South America Leveraged IRR Mexico/Caribbean/South America Cap Rate (Initial Yield)

9 Hotel Investor Sentiment Survey Buy, build, hold, sell? May Yield requirements are considerably higher in Mexico and South America than in the U.S. and Canada. But in the longer term, especially for Brazil, there will be a greater move toward convergence, as more international investors enter the market and transparency of the transactions market improves. For the three markets surveyed in Mexico, investors leveraged IRR requirements are on average 4.4 percentage points higher than in the U.S. due to Mexico s higher perceived risk profile related in part to security concerns. Expected leveraged IRRs average 23.3% for Mexico City, 23.8% for Cancun/Riviera Maya and 22.5% for Los Cabos. Americas cap rate (initial yield) trend over next six months Americas average cap rate (initial yield) for new acquisition Americas average^ 13% Atlanta Boston Chicago Dallas Denver Hawaii Cap Rate (Initial Yield) % 11% 9% 7% Mexico/Caribbean/South America average^ U.S./Canada average^ Houston Los Angeles Miami New York Orlando Pacific Northwest Philadelphia Phoenix San Diego San Francisco Tampa Washington D.C. Montreal Toronto Vancouver -40% - 0% 40% Net Balance (Positive/Higher and Negative/Lower) 5% New York Washington D.C. Boston San Francisco Hawaii Los Angeles Vancouver Pacific Northwest Chicago San Diego Montreal Miami Denver Toronto Philadelphia Tampa Houston Orlando Dallas Atlanta Phoenix Sao Paulo Rio de Janeiro Cancun/Riviera Maya Santiago Buenos Aires Los Cabos Lima Caribbean Bogota Mexico City Americas average leveraged IRR for new acquisition Leveraged IRR % 30% 25% 15% 10% Mexico/Caribbean/South America average^ U.S./Canada average^ New York Washington D.C. Boston San Francisco Pacific Northwest Los Angeles San Diego Hawaii Vancouver Chicago Philadelphia Denver Tampa Houston Toronto Montreal Miami Atlanta Dallas Orlando Phoenix Los Cabos Sao Paulo Cancun/Riviera Maya Rio de Janerio Mexico City Santiago Lima Bogota Buenos Aires Caribbean

10 8 Hotel Investor Sentiment Survey Buy, build, hold, sell? May 2011 The stage is set for robust transaction activity Similar to the previous survey, respondents buy sentiment dominates. The largest change in respondents investment intentions was marked by the 6.6 percentage point increase in investors buy sentiment, representing its highest level since October Year-to-date through May 2011, the Americas has recorded a 140% increase in deal volume compared to the same period last year, a remarkable increase, albeit off of a very low base. This increase in transaction volume is particularly impressive given the debt markets are still weak relative to the last cycle. When the debt markets recover more fully, the expectation is that more buyers will enter the market, thereby further boosting transaction volumes. Momentum for acquisitions has continued to show strength. The proportion of respondents signalling buy as their dominant intention increased to 59.0%, representing a six-year high. As the overall market recovers from the economic downturn, buyers are becoming more aggressive and are increasingly pricing in optimism on future cash flows. In absolute terms, investors buy intentions continue to be highest in the U.S. gateway markets such as Miami (76.9%), New York (68.8%), and Los Angeles (67.6%), as they have generally experienced the most robust rebound in visitation levels. In Canada, investors buy intentions are highest in Vancouver at 66.7%. Brazil is becoming a more sought-after investment market for international investors, and buy sentiment increased to 66.7%, gaining ground on build sentiment. Cancun and Mexico City have also experienced an increase in buy sentiment. Across the Americas, the proportion of respondents who indicated sell as their dominant investment strategy decreased by 5.6%, driven by the large uptick in buy intentions. Investors sell sentiment outside of the U.S. and Canada is lower in comparison. As Brazil continues to record strong economic growth and ramp up to the 2014 FIFA Soccer World Cup and the 2016 Summer Olympic Games, investors are seeking to benefit from the expected strong income growth over the next several years. Thus, in both São Paulo and Rio de Janeiro, investors expressed low intent to sell their assets, which means that assets that do come to market will likely receive a significant amount of interest. Americas short term investment intentions Atlanta Boston Chicago Dallas Denver Hawaii Houston Los Angeles Miami New York Orlando Pacific Northwest Philadelphia Phoenix San Diego San Francisco Tampa Washington D.C. Montreal Toronto Vancouver Bogota Buenos Aires Caribbean Lima Rio de Janeiro Sao Paulo Santiago Cancun/Riviera Maya Los Cabos Mexico City 0% 40% 60% 80% 100% Buy Build Hold Sell Investors hold sentiment declined to 29.7%. Cities with the greatest decline in hold sentiment include the Caribbean, Philadelphia, Houston, and Orlando. Markets where the hold sentiment still dominates include Dallas, Tampa, Montreal, Buenos Aires, Santiago, and Los Cabos. Respondents inclination to build hotel assets (5.8% of investors) remained virtually flat in the U.S., with the exception of New York, Miami, and Boston, where investors exhibited an increased build sentiment. As these top cities continue to outperform the overall market with consistently higher occupancy trends, global investors have shown interest to increase their distribution within these markets by selectively considering the viability of new development. Due to the lack of available institutional-grade hotel stock in São Paulo and Rio de Janeiro, respondents evidenced build intentions of 33.3%; their sentiment to build is expected to remain strong over the next several years.

11 Hotel Investor Sentiment Survey Buy, build, hold, sell? May Americas short term investment intentions 2000 to 2011^ 80% 60% 40% 0% Seo-00 Jun-01 Jun-02 Jun-08 Oct-08 Buy Build Hold Sell Across the Americas, 49% of survey respondents indicated they are targeting upscale properties for investment. Upscale assets are most sought after in U.S. markets where investors flush with cash vie for opportunities to purchase high-quality assets in prime urban locations to benefit from attractive acquisition prices relative to replacement cost. Another 22% of respondents indicated they are primarily targeting luxury assets for investment, seeking to acquire luxury assets in high barriers to entry markets at pricing well below historical norms. In the U.S., demand for luxury assets is highest in New York, Washington D.C., and Hawaii. Americas preferred asset type Atlanta Boston Chicago Dallas Denver Hawaii Houston Los Angeles Miami New York Orlando Pacific Northwest Philadelphia Phoenix San Diego San Francisco Tampa Washington D.C. Montreal Toronto Vancouver Bogota Buenos Aires Caribbean Lima Rio de Janeiro Sao Paulo Santiago Cancun/Riviera Maya Los Cabos Mexico City 0% 40% 60% 80% 100% All Grades Luxury Upscale Midscale Budget The acquisition of mid-scale assets has garnered increased investor interest with 26.1% of respondents expressing interest in this asset class. Within the U.S., the interest in mid-scale assets is highest in the Pacific Northwest, Denver, and Dallas. The number of select service hotel portfolios on the market continues to increase as institutional owners and special servicers work to clear distress off their books which is leading to positive momentum in the select service hotel transactions market across the U.S. Outside of the U.S. and Canada, interest in mid-scale assets is highest in Santiago, Lima, Buenos Aires, and Bogotá. The lack of quality branded mid-scale product presents a significant investment opportunity and international brands are actively planning to enter these markets or build on their existing distribution.

12 10 Hotel Investor Sentiment Survey Buy, build, hold, sell? May 2011 EMEA overview Highlights from the survey The recent survey continued to show improving market perceptions by investors. Trading performance expectations for EMEA strengthened in the short and medium term, with hotel markets now perceived to be firmly on the route of recovery. Only short term expectations for MENA remained negative, driven by the political difficulties currently being faced across the region. Growth is, nevertheless, also here anticipated to return in the medium term. In line with strengthening market confidence, yield and IRR requirements strengthened in the recent survey. Across the region, IRR requirements reached 14.3% compared to 15.1% in October Yield requirements reached 7.3%, bringing it back to a level experienced in June 2008, and are expected to largely remain stable in the near future. Yield requirements remained lowest in Western Europe, in particular for London, Paris and the German cities. A substantial improvement was also reported for cities in Eastern Europe and MENA. For the first time since October 2008, investors reported dominant buy intentions while the hold sentiment held a strong second place. Improving market conditions have clearly prompted investors again to look for investment opportunities, although largely concentrated in Western Europe. MENA and Eastern Europe continued to portray dominant hold intentions. The recovery in investor confidence and investment activity drove an increase in the buyer to seller ratio. The buyer to seller ratio reached 2.7 to one seller compared to only 1.9 buyer to one seller in October Solid optimism for future performance Trading performance expectations across EMEA continued to strengthen in the latest HISS survey, both in the short and medium term. While short term expectations were still subdued in October 2010, investors have now reported greater confidence in performance for the coming six months. In the medium term, trading performance expectations stayed strong with growth anticipated across almost all markets in the next two years. Only seven out of the 37 markets tracked are anticipated to see performance fall in the medium term. Overall, strongest growth in the medium term was anticipated for London, Paris, Istanbul, Rome and Munich. EMEA trading performance expectations 2000 to 2011^ Net Balance 80% 60% 40% 0% - -40% -60% -80% Sep-00 Jun-01 Jun-02 Jun-08 Short Term Medium Term Trading performance for Western Europe in general strengthened substantially, moving to a weighting of 28.8% in the short term and 40.7% in the medium term. Results for the UK and Germany individually showed a similar trend, with growth particularly projected for the medium term. For the UK hotel market, this might seem somewhat surprising as the country s provincial markets continue to struggle with challenging economic conditions and stringent budgetary measures. The survey results confirm that the majority of growth is driven by London, although performance expectations were also positive for the cities tracked in the Provincial UK. While growth for the Provincial UK is anticipated to remain subdued in the short term, investors expected a more pronounced improvement within a two year period. The top performer in terms of growth is anticipated to be Edinburgh, which continues to be an attractive location for both business and leisure visitors. Investors continued to report confidence in the German markets, with strongest expectations reported for Munich and Hamburg. Germany has taken the lead in terms of medium term performance expectations since October 2009 and continued to do so in the latest survey. Although the country also suffered in the recent downturn, the German cities have proved to be rather resilient, benefiting from their large domestic market and the relatively quick recovery of the German economy. Only a few cities in Europe are anticipated to be facing some further hardship. In the short term, this includes cities such as Prague, Budapest, Birmingham and Manchester, while in the medium term Dublin, Lisbon and the Spanish Resorts are expected to experience further declines. Dublin continues to be perceived as a fragile and declining market by investors, suffering from oversupply and a weak national economy.

13 Hotel Investor Sentiment Survey Buy, build, hold, sell? May EMEA trading performance expectations EMEA Average^ Abu Dhabi Amsterdam Barcelona Berlin Birmingham Brussels Budapest Cairo Casablanca Copenhagen Doha Dubai Dublin Dusseldorf Edinburgh Frankfurt French Riviera Hanburg Istanbul Jeddah Lisbon London Madrid Manchester Marrakech Milan Moscow Munich Paris Prague Riyadh Rome Spanish Resorts Stockholm Vienna Warsaw Zagreb -100% -80% -60% -40% - 0% 40% 60% 80% 100% Net Balance Short Term Medium Term Overall trading performance expectations for Eastern Europe improved notably compared to the survey in October Growth expectations were predominantly driven by Istanbul, Moscow and Warsaw. Tourism in these locations has expanded rapidly in recent years, encouraging international branded operators to find a foothold in the market to benefit from the markets growth potential. Results for MENA were more diverse with investors having reported negative short term performance expectations for the majority of cities. While the hotel market in some cities is currently suffering from political unrest, others continue to struggle with oversupply in a still weak, albeit recovering, tourism market. In particular Cairo is expected to suffer extensively in the short term. Expectations for the medium term were somewhat more positive, with investors expecting trading performance to remain stable across the region in the coming two years. EMEA investment yield expectations ^ 25% 15% 10% 5% Jun-01 Jun-02 Jun-08 Oct-08 Cap Rate (Initial Yield) % Leveraged IRR % Confidence returns, hardening of yield requirements 2010 proved to be a year of recovery for the hotel investment market with investment activity across EMEA having more than doubled compared to Strong investment appetite remained apparent in the first few months of 2011, with EMEA investment volumes increasing by 160% compared to Q In line with rising investor confidence and growing activity, yield requirements in the HISS survey have strengthened since April 2009 and continued to do so in the latest survey. Average yield requirements across EMEA moved from 7.7% in October 2010 to 7.3% in April 2011 and are expected to largely remain stable in the next six months. Following the same trend, IRR requirements improved by 80 basis points and moved to 14.3%. IRR requirements ranged from 12.0% in Paris to 18.2% in Riyadh. Lowest IRR requirements were generally reported for Western Europe, in particular cities in Germany and key gateway cities such as London and Paris. Highest IRR requirements were reported for cities in MENA, although requirements for the region did improve by an average 350 basis points compared to the survey in October Investors continued to report strong interest in Western Europe with yield requirements hardening to 7.0% in the recent survey, from 7.2% in October Although lowest yield requirements were reported for Paris and London, the German cities also continued to portray strong results. Average yield requirements across all German cities reached 6.5%, 30 basis points below results in October Yield requirements were particularly low for Munich and Hamburg, in line with strong trading performance expectations reported earlier. In addition to Germany s overall economic recovery, Munich has experienced a series of international trade fairs and large conferences which has assisted hotel performance and has attracted increasing investor interest.

14 12 Hotel Investor Sentiment Survey Buy, build, hold, sell? May 2011 EMEA average leveraged IRR for new acquisition EMEA average cap rate (initial yield) for new acquisition Leveraged IRR % 18% 16% 14% 12% 10% 8% 6% 4% 2% 0% EMEA Average^ Paris Rome London Munich Hamburg Amsterdam Barcelona Frankfurt Dusseldorf Berlin \Milan French Riviera Madrid Manchester Brussels Edinburgh Vienna stockholm Copenhagen Dublin Lisbon Birmingham Warsaw Prague Zagreb Budapest Istanbul Spanish Cairo Moscow Jeddah Dubai Doha Abu Dhabi Marrakech Casablanca Riyadh Cap Rate (Initial Yield) % 10% 9% 8% 7% 6% 5% 4% 3% 2% 1% 0% EMEA Average^ Paris London Munich Hamburg Amsterdam Frankfurt Berlin Rome Dusseldorf Barcelona French Riviera Vienna Milan Stockholm Brussels Madrid Copenhagen Edinburgh Warsaw Prague Istanbul Manchester Budapest Lisbon Moscow Birmingham Dublin Zagreb Spanish Resorts Marrakech Jeddah Abu Dhabi Riyadh Doha Casablanca Dubai Cairo Average yield requirements across all UK cities reached 7.3%, around 30 basis points up on the survey in October Investors mainly reported a softening in yield requirements for Birmingham and Manchester, each moving out by 50 basis points compared to the survey in October This could be perceived as against the observed trend as both cities have benefited from enhanced corporate travel recently. Nevertheless, the Provincial UK cities remain highly dependent on the domestic market which continues to be challenging. This is not likely to change in the near future as Government budgetary restrictions further adversely impact disposable incomes. Yield requirements across the remainder of Western Europe either remained stable or strengthened. Confidence in resort areas in particular improved notably, with investors reporting an improvement of 200 and 160 basis points for the French Riviera and Spanish Resorts respectively. Yield requirements for Milan and Barcelona, on the other hand, remained stable, although they were already at a low level. In Eastern Europe, average yield requirements hardened by 30 basis points and fell just below the 8.0% mark. Investors reported greatest confidence for Warsaw, Prague and Istanbul. While Warsaw and Istanbul are very much still developing their hotel market, the relatively low level of yield requirement for Prague could be considered counter intuitive. The city has suffered from vigorous development of a large number of upscale hotels while budget and mid-market hotels largely remain absent. Weakening corporate travel substantially impacted hotel performance in the city in recent years with a further fall experienced at year to date March The biggest shift was reported for MENA where yield requirements hardened by 90 basis points and reached 9.0% on average. Yield requirements for Doha and Cairo in particular assisted the reported improvement. Nevertheless, yield requirements for Cairo remained the highest across all cities in the survey. Despite turbulence in the region, investors reported increasing appetite for the region, most likely due to their understanding that the current difficulties will only be short term. The only exception was Dubai, where yield requirements softened by 60 basis points and reached 9.1%. According to investors, yield requirements across EMEA will remain relatively stable in the coming six months. Investor activity has strengthened and the EMEA investment market is in a significantly better place than it was 12 months ago. Cities such as Paris, Rome, Milan and London are anticipated to experience a further hardening of yield requirements in the near future as investors remain focused on the capacity of these larger gateway markets to drive more income growth. Buy sentiment triumphs again Investment intentions reflect the boost in hotel investment activity experienced since the fourth quarter of While hold intentions have dominated market sentiment since the survey in April 2009, buy intentions have once again become the key sentiment in investors minds. The hold sentiment remained strong at a weighting of 35%, clearly indicating that some level of cautiousness remains present in the market. Build and sell intentions continued to take the third and fourth place respectively.

15 Hotel Investor Sentiment Survey Buy, build, hold, sell? May EMEA cap rate (initial yield) trend over next six months EMEA Average^ Abu Dhabi Amsterdam Barcelona Berlin Birmingham Brussels Budapest Cairo Casablanca Copenhagen Doha Dubai Dublin Dusseldorf Edinburgh Frankfurt French Riveria Hamburg Istanbul Jeddah Lisbon London Madrid Manchester Marrekech Milan Moscow Munich Paris Prague Riyadh Rome Spanish Resorts Stockholm Vienna Warsaw Zagreb -60% -40% - 0% 40% 60% Net Balance (Positive/Higher and Negative/Lower) Buy intentions proved strongest in Western Europe, in particular in the UK where London as well as the Provincial cities increasingly were on investors radar. Overall, investors reported strongest buy intentions for Madrid, Rome, London, Paris and Edinburgh. Similar to previous surveys, investors also continued to report a strong appetite to acquire assets in Germany. For Berlin, however, investment intentions shifted notably from the survey in October While buy intentions dominated at the end of 2010, the current survey portrayed a key focus on holding assets by investors. This is likely due to the large number of new hotels having entered the Berlin hotel market in 2010 with several more due to open in the near future. The buy sentiment was not prevalent in MENA and CEE. Although investor confidence in both areas has improved, the areas continue to be perceived as risky, in particular compared to established locations in Western Europe. The exception to this rule was Warsaw and Istanbul, for which investors reported dominant buy sentiments of 45.0% and 36.4% respectively. The market s current position at the start of the hotel market cycle continues to offer great opportunities to investors, with many keen to get a foothold in the market. EMEA short term investment intentions 2000 to 2011^ 60% 40% 0% Sep-00 Jun-01 Jun-02 June-08 Oct-08 Buy Build Hold Sell After two years of dominance, hold intentions fell from 40.3% to 35.0%. Investors particularly reported a notable decline in hold sentiment for the Scandinavian cities, Stockholm and Copenhagen. Both cities are highly dependent on corporate travel and were impacted by the financial crisis which resulted in weaker corporate spending. Reports are showing that the cut in corporate spending has now started to ease and corporate travel is on the rise again, greatly benefitting cities such as Stockholm and Copenhagen. This has seemingly provided investors with confidence to consider selling assets or even expand their portfolio in the cities. Despite the decline in overall weighting, hold intentions did remain dominant for MENA and Eastern Europe. Both regions continue to be plagued with oversupply and weak economic conditions, driving investors to hold assets for as long as possible. This has only been intensified by the recent political turbulence in MENA. The hold sentiment was strongest for Prague, Riyadh and Cairo. Also the French Riviera was seemingly considered to be a weak market to trade assets, with a weighting of more than 50% to hold onto resorts. Build intentions came in third place and, in contrast to previous surveys, was strongest for Scandinavian and German cities. While the survey in October 2010 included strong build intentions for MENA, investors have now understandably shied away from building in the region. Despite recent turbulence, the region is perceived to offer great opportunities to investors with many international hotel operators keen to establish themselves or grow their existing pipelines in the area. While Dubai and Abu Dhabi have experienced high levels of development in recent years and in some segments suffer from oversupply, many other cities in the region continue to have a limited number of international branded and graded hotels.

16 14 Hotel Investor Sentiment Survey Buy, build, hold, sell? May 2011 EMEA short term investment intentions Abu Dhabi Amsterdam Barcelona Berlin Birmingham Brussels Budapest Cairo Casablanca Copenhagen Doha Dubai Dublin Dusseldorf Edinburgh Frankfurt French Riviera Hanburg Istanbul Jeddah Lisbon London Madrid Manchester Marrakech Milan Moscow Munich Paris Prague Riyadh Rome Spanish Resorts Stockholm Vienna Warsaw Zagreb 0% 40% 60% 80% 100% Buy Build Hold Sell EMEA preferred asset type Abu Dhabi Amsterdam Barcelona Berlin Birmingham Brussels Budapest Cairo Casablanca Copenhagen Doha Dubai Dublin Dusseldorf Edinburgh Frankfurt French Riviera Hanburg Istanbul Jeddah Lisbon London Madrid Manchester Marrakech Milan Moscow Munich Paris Prague Riyadh Rome Spanish Resorts Stockholm Vienna Warsaw Zagreb 0% 40% 60% 80% 100% All Grades Luxury Upscale Midscale Budget Serviced Apts Investors reported a keen interest to develop hotels in Stockholm and Munich. On a city level, build sentiments were also strong for Istanbul, Moscow and Paris. Whilst opportunities for development could be available in Istanbul and Moscow, development in Paris has remained limited in recent years due to a lack of land availability and appropriate buildings. The city is, nevertheless, due to see a number of new luxury hotels enter the market. Sell intentions continued to decline, reiterating investors strengthening confidence in the EMEA hotel market. The sell sentiment was most prominent in MENA, in particular in Doha, Abu Dhabi and Jeddah. Investors also reported high sell intentions for the Spanish Resorts and Zagreb. Both markets have struggled in light of weaker travel across the region and have been forced to lower rates substantially in order to attract visitors, keeping investor profit levels subdued. When asked about asset preference, the key choice remained centred around upscale and mid-scale hotels, while more than a quarter of investors proved willing to consider all type of assets. Luxury assets were mainly favoured in MENA and Eastern Europe, where the development of upscale and luxury assets has dominated the market and availability in the lower segments remains limited. Despite intensifying development of budget hotels across the region, investor preference for this asset type weakened in the current survey. While hotel investment activity has picked up since mid 2010, the majority of activity has been concentrated in Western Europe and in particular the main capitals. Investors are again starting to consider assets in secondary locations and outside of Western Europe, though activity in these locations has remained restricted until now. Improving market conditions and investor confidence have resulted in a more favourable position for sellers in the market. In our current survey, the buyer to seller ratio reached 2.7 compared to 1.9 in October The highest buyer to seller ratios were reported for Paris (20.0), Munich (18.0) and Madrid (16.0). The delicate nature of the market, however, remained apparent in the number of cities with a low buyer to seller ratio, with 13 cities comprising a ratio of less than one buyer to one seller.

17 Hotel Investor Sentiment Survey Buy, build, hold, sell? May Asia Pacific overview Highlights from the survey Little change in trading sentiment compared to October 2010 with short term expectations for positive trading up 1.5 points to 23.5% and medium term down 2.5 points to 38.9%. Investors rank Singapore, Sydney and Hong Kong highest for both short and medium term trading. Yield requirements have contracted compared to our last survey. Expectations for leveraged IRRs recorded a 90 basis point reduction to average 16.2%, whereas initial yields (cap rates) recorded a 70 basis point decline to 8.0%. Expectations for Asia Pacific initial yields are now at their lowest level since the survey s inception in On the whole, investors expect cap rates to record little change over the next six months, although further contraction is expected in Australia s state capitals, Indonesia and some Chinese cities. With the region s economic and trading recovery well underway, investors have signalled a significant change in tack with build sentiment surging 10.3 percentage points to 26.2% - the highest level since October Markets tipped most ripe for development include Taipei, Manila, New Delhi and Ho Chi Minh City. Stable trading conditions projected across Asia Pacific Investor expectations for trading across Asia Pacific have crystalised with little change in sentiment recorded over the past 18 months and opinion weighted firmly in favour of continued growth. In our most recent survey expectations for positive trading over the short term increased, up 1.5 percentage points compared to October 2010 to 23.5%, whereas medium expectations reduced marginally, down 2.5 points to average 38.9%. The post-global financial crisis (GFC) trading correction is largely complete and market conditions are expected to stabilise in line with the strong economic growth projected across the region. Localised supply and demand market dynamics will once again dictate the pace and extent of growth over the medium term. Asia Pacific trading performance expectations 2000 to 2011^ Net Balance 80% 60% 40% 0% - -40% -60% Sep-00 Jun-01 Jun-02 Jun-08 Oct-08 Short Term Medium Term Reflecting this, short term trading expectations are strongest for Singapore (61.2%), Hong Kong (58.3%) and Sydney (53.2%). These three markets have been ranked highest for trading in our last three surveys. Nominal RevPAR in all three markets has now surpassed the 2008-peak as these hotel markets continue along their strong growth trajectory. Sentiment for these markets is similarly strong over the medium term although Sydney (62.8%) takes top spot, followed by Singapore (62.7%) and Hong Kong (56.5%). Singapore and Hong Kong both face an element of downward pressure from new supply, offset by strong inbound growth from burgeoning regional travel markets and new patterns of visitation being spawned from new and existing tourism demand generators. Sydney s appeal, on the other hand, reflects an accommodation market which is facing considerable capacity constraints and little impetus to build with hotel construction continuing to be held back by market forces. Negative short term trading is expected in only four of the 29 markets we track. Markets where trading is expected to remain under pressure over the next six months include Fiji (-8.6%), Gold Coast (-19.2%), Osaka (-25.5%) and Tokyo (-68.6%).

18 16 Hotel Investor Sentiment Survey Buy, build, hold, sell? May 2011 Negative trading is also expected for Fiji over the medium term (-7.0%) although results are contrary to recent trading statistics. Fiji, as well as Bali and Jakarta, have exhibited the most robust trading across the region in recent times. RevPAR in all three markets is currently between and 30% higher than in June 2008 with markets having largely been shielded from the adverse impacts of the GFC. Bali and Fiji, in particular, have benefitted from strong outbound travel from Australia spurred by the high AUD and a prolonged period of economic prosperity. As expected, sentiment for short term trading in Japan recorded a notable softening compared to our October 2010 survey following the March 11, 2011 earthquake and tsunami. The Magnitude 9.0 earthquake, which is one of the greatest in recent history, hit the eastern part of Japan, and more than 28,000 people have since been reported deceased or missing, mainly due to the tsunami immediately after the first quake. For Japanese hotels the impacts have been varied. Those located close to the disaster zone are seeing increased demand from the reconstruction efforts, whereas some hotels in greater Tokyo are being used to house people displaced. Inbound tourism has declined sharply and is not expected to recover until the world has a better understanding of the risks stemming from the subsequent radiation leaks. The majority of expatriates have now returned to Tokyo, although there may be a small number who remain permanently displaced. Domestic travel was initially disrupted due to the suspension of transportation systems and highways, but domestic corporate demand has since rebounded with the majority of infrastructure restored by the end of April. Hotels in Osaka recorded a short-term increase in demand as they benefited from the temporary relocation of many multinational corporations from Tokyo. Asia Pacific trading performance expectations AP Average^ Beijing Chendgu Guangzhou Hangzhou Hong Kong Macau Shanghai Taipei Osaka Tokyo Seoul Bali Jakarta Bangkok Phuket Ho Chi Minh City Kuala Lumpur Manila Singapore Brisbane Gold Coast Melbourne Perth Sydney Auckland Fiji Bangalore Mumbai New Delhi -100% -80% -60% -40% - 0% 40% 60% 80% 100% Net Balance Medium Term Short Term Sentiment for short term trading in Tokyo recorded a sharp decline to -68.5% when compared to 26.5% in October However, the negative impact is expected to be relatively short-lived with positive medium term trading expectations averaging 26.0% (previously 45.5%). Expectations for Osaka are better at -25.5% for the short term and 12.0% over the medium term. This represents little change to our October 2010 survey at 11.1%.