MEA Serviced Apartment Markets & Guest Experience Index TM. October 2015

Transcription

1 MEA Serviced Apartment Markets & Guest Experience Index TM October 2015

2 Report Overview INTRODUCTION TO COLLIERS MEA SERVICED APARTMENT MARKETS AND GUEST EXPERIENCE REPORT In this paper we examine the serviced apartment markets within the Middle East and Africa (MEA) region, paying particular attention to the growth in popularity of the concept, the rise in the sale of units as branded residences, the market dynamics in respective markets, and key performance indicators. We also look at guest experiences through online serviced apartment ratings collected by Olery, as well as review the latest legal trends contributed by legal specialists Al Tamimi & Company. Overall our report aims to be an informative synopsis of the regional serviced apartment market, with our analysis touching upon a number of key stakeholder questions including; What are the drivers of price premiums for branded residences? Is there a significant potential of developing serviced apartments in Africa? What are the key performance indicators of serviced apartment properties across cities in the region? What are the key legal considerations for a developer when deciding to sell individual serviced apartment/ branded residence units? By answering these questions, we provide key information to the key issues/ trends pertaining to this growing concept within the hospitality industry. CONCEPT OVERVIEW Originating in the US, the serviced apartment concept was established to provide long-stay guests with a comfortable alternative to hotel accommodation by providing them with features such as a kitchen, living area and bedroom. The concept has evolved and is now a popular choice amongst families/ groups on vacation, medium-stay corporate guests (project workers) and long-stay guests (expatriate relocation). Serviced Apartments Rooms Facilities Location - 30% larger than hotel rooms room, kitchen facilities duplexes & maid's rooms to attract GCC families Efficient room designs loft inspired KEY ELEMENTS OF SERVICED APARTMENTS F&B options pool growing in popularity Future Trends options & mini-marts due to low operational costs properties to increase appeal to leisure guests Primarily in city centres, within business & residential districts transportation links areas but offer shuttles to city centre and access packages to affiliated hotel growth phase in the MEA region, with further scope existing for developing more efficient, purpose- EVOLUTION OF THE CONCEPT IN THE REGION Initially, the serviced apartment segment in MEA comprised mostly of unbranded properties, typically owned and managed by private individuals. However, in more mature hospitality markets such as Dubai, Abu Dhabi and Doha, internationally branded properties are growing in popularity, currently exceeding 40% of total supply. A large number of serviced apartments in the Middle East have been converted from residential apartments (i.e. either after completion or during construction), consequently the properties tend to be less efficient due to their large room sizes and lack of studio units. As a result, some consumers have become accustomed to larger sized rooms, contradicting the true serviced apartment concept of units smaller than residential apartments. 2

3 Serviced Apartment Model OPERATING MODEL From a product perspective, the serviced apartment development model typically emphasises limiting public areas and back of house support, with the main focus on maximising the number of potential rentable units within a property. Just as hotels attract guests with extensive ancillary facilities and personalised service, serviced apartment properties typical capture their guests through larger unit sizes. Therefore, across the MEA market, the Average Daily Rates (ADRs) of serviced apartments are generally aligned with hotels of a similar positioning. Overall, serviced apartments share a number of characteristics with both, hotels and residential apartments, combined to form its own product, although with some key differences, as highlighted in the below exhibit. INTERNATIONAL OPERATORS - HOTEL & SERVICED APARTMENT DEVELOPMENT/ ACQUISITION Global hotel brands are now branching into the serviced apartment sector as management requires fewer facilities and lower payroll costs than typical hotels. On average, branded serviced apartments have 29% fewer staff than unbranded ones, as they benefit from standardised lean operations and centralised clustered services. For example, two large hotel operators, Accor and Hyatt, entered the serviced apartment market by acquiring preexisting properties and rebranding them as Adagio and Hyatt House, respectively. Similarly, Frasers Hospitality (international serviced apartment operator) recently acquired two boutique lifestyle hotel brands : Malmaison and Hotel du Vin. By diversifying their business model, hospitality operators aim to increase their profitability and global visibility. The growth in the number of international operators who now operate in both the serviced apartment and hotel sector, has given rise to an increase in the development of dual component properties (both hotel and serviced apartments operating in the same property). REVENUE MIX % contribution to total property revenue 4 8 % ROOMS F&B 90-96% 4-8% ANCILLARY 2 4% apartments carry less risk than hotels typically achieving higher occupancy rates and suffer less from seasonal Hotel Serviced Apartments Residential Units High Operating Costs Pay daily High staff ratio Extensive ancillaries Personalised services Medium Operating Costs Pay Daily / Monthly Lower staff ratio Restricted ancillaries Limited personalised services Low Operating Costs Pay Annual / Quarterly Low to none staff ratio Limited ancillaries No personalised services 3

4 Branded Residences Concept CONCEPT OVERVIEW From simply renting serviced apartment units to long-stay guests, branded residences have emerged to form a new hospitality asset class. Over the years, the definition of Branded Residences has evolved with the rapid change of market conditions in the region. Originally, this accommodation sector constituted of residential units attached to a hotel development with a more simple model has emerged, whereby an affiliation to a hotel operator alone is enough to create an identity for the development (i.e. physical attachment to a hotel property not required). By creating a feel of exclusivity, branded residences focus on architecture and design in order to differentiate the product from regular residential developments in the operating market. DISTINCTIVE OPERATING MODEL Branded residences are typically developed in city-centric areas of mature markets. Sometimes, resort destinations witness these accommodation types, however, they typically comprise of villa products, accounting for secondary or vacation homes for HNWIs. Not all purchased units are lived in by owners, as holding the unit as an investment increases the appeal to both the developer and owner. Most developments offer owners a rental pool option whereby the operator agrees to rent out the property (either short or long term) on behalf of the owner. In this arrangement, operators do not guarantee the rent of the unit, but if leased, a pre-agreed fee is shared between both parties. Branded residences incur similar operating costs when units are in operation, therefore maintenance costs are significantly higher than non-branded developments. In addition to the selling price, annual maintenance costs are paid by the owner to cover the management fee, FF&E reserve, property maintenance, utilities and house keeping costs. The influence of a luxury brand name, hotel-like services and facilities, and appealing internal and external design leads to these units being priced at a premium, typically starting from 10% compared to non-branded residences. Sale BRANDED RESIDENCES Unit owner lives in the unit, or rents it out Low Operator Involvement BRANDED RESIDENCES CONCEPT Operator leases Full Operator the apartment Involvement for the unit (Earnings shared owner between developer & unit owner) Operator Involvement varies (for a % commission similar to residential leasing agents) Unit owner puts unit in a rental pool managed by operator BRANDED RESIDENCES PREMIUM Over standard residence units High-end Branded Developments 10-20% premium Serviced Apartment Units Luxury Branded Developments 21-40% premium World Famous Ultra Luxury Branded Developments 41+% premium Rent Operator Management Full Operator Involvement 4

5 Premium Drivers of Branded Residences Physical attributes: Tangible characteristics such as an iconic design of the building to branded white goods and electronics in every unit, and intangible features such as valet parking. play a significant role in achieving the premium selling price per residence. Luxury Brand PREMIUM DRIVERS Security & Privacy Location: The location is a key consideration for operators as prime locations tend to attract significant demand. By combining a high-end residential development with hotel facilities increases the chances of charging a premium on units. Market demographics: In markets where HNWIs are a rapidly growing segment, the introduction of branded residences is likely to receive a positive response due to the exclusivity and prestige associated with such a product. Unit height: Units on higher floors tend to achieve a higher premium over the same residences on lower floors owing to desirable views. An example of this are the branded residences in Downtown Dubai which have a considerably higher selling rate for residences on higher floors and penthouses due to direct views of the Burj Khalifa and Palm Jumeriah / World Islands. Design: The design of the residential unit as well as the building overall is essential in portraying the exclusivity of the development. In many cases, well-renowned architects design the residence, enhancing the premium charged. CENTRAL Location Personal Concierge World-famous luxury brands can achieve a price premium of 41%+ compared to prime Iconic Design Duplex units increasing in GCC and Africa Brand: The confidence associated with buying into a global brand is a key factor for investors, as purchasing a unit within the development not only creates an impression of exclusivity, but also augments the assurance on the delivery of the unit and its management structure. High floors and large units High-end fixtures & amenities 5

6 Thousands GCC Serviced Apartments INTRODUCTION To provide an overview of the Middle East serviced apartment industry, Colliers has chosen to provide an analysis of serviced apartments within GCC capital cities and other key cities including Al Khobar & Dammam, Makkah, Madinah, and Jeddah in KSA, as well as Dubai and Sharjah in the UAE. This section aims to highlight the supply (in terms of current supply, branding, and average unit sizes), performance, and segmentation of serviced apartments within the GCC. NUMBER OF PROPERTIES AND KEYS As indicated in the exhibit to the right, Dubai, UAE holds the highest number of serviced apartment properties, currently totalling up to 232 establishments and Tourism and Commerce Marketing in branding and promoting the city as vibrant leisure and corporate destination. Following Dubai is the city of Riyadh in Saudi Arabia, with a total of 129 properties, however, serviced apartments in this city average 43 keys per establishment. The low average key count within cities such as Riyadh, Jeddah, Khobar and Dammam, Muscat, and Kuwait City, is attributed to the fact that the majority of serviced apartment establishments are developed by small individual investors, rather than large hospitality groups. the GCC is limited, predominantly managed by unbranded and locally branded operators, and lack international operational LOW AVERAGE KEY COUNT NO. OF PROPERTIES & AVERAGE KEYS Dammam & Khobar Muscat Riyadh Jeddah Makkah Kuwait City Sharjah Cairo Marrakesh HIGH NUMBER OF PROPERTIES LOW NUMBER OF PROPERTIES Abu Dhabi Manama Doha Dubai Madinah INTERNATIONALLY BRANDED SUPPLY Dubai holds the highest number of serviced apartment keys with a total over 29,000 keys, 36% of which are managed and operated by international operators. The remaining 64% of the city's supply is represented by locally branded and unbranded establishments, each accounting for 28% and 36%, respectively. Contrarily, the Holy cities of Makkah and Madinah in Saudi Arabia have the least developed markets among those analysed. This is attributed to the different nature of these markets as a destination, which is heavily focused on religious tourism generated by pilgrims traveling for Hajj and Umrah. Excluding Dubai, the current supply of serviced apartments within the GCC is limited, predominantly managed by unbranded and locally branded operators, and lack international operational standards. This highlights the opportunity for international operators to enter the GCC serviced apartment market with establishments comprised of a larger number of keys than the current market averages. HIGH AVERAGE KEY COUNT NUMBER OF KEYS & SHARE OF INTERNATIONALLY BRANDED SUPPLY, OCTOBER Dubai Abu Dhabi Riyadh Sharjah Madinah Dammam Jeddah Manama Doha Kuwait & Khobar City Muscat Makkah 50% 40% 30% 20% 10% 0 No. of Keys % of Internationally Branded 6

7 GCC Serviced Apartments SERVICED APARMTENT UNIT SIZE AVERAGE IN m² Abu Dhabi Dubai Sharjah Doha Kuwait SERVICED APARTMENT UNITS Serviced apartment establishments across the GCC tend to offer a variety of units compared to establishments in Europe, providing an additional unit type featuring three bedrooms to accommodate the needs of large GCC families. Unit sizes across the analysed markets are similar, except for Dubai and Doha which tend to have larger studios and three bedroom units. This may be attributed to the high volume of properties that were planned initially as residential buildings and were subsequently converted. Studio 1 BR 2 BR 3 BR SERVICED APARTMENT PERFORMANCE Riyadh Khobar & Dammam Jeddah Makkah Madinah In the region, the highest average rates for serviced apartments are found in Manama, Bahrain, reaching up to USD 200 per night in peak periods. This is due to the Studio N/A N/A weekend getaway destination for many GCC nationals. 1 BR The highest occupancy levels for serviced apartments are achieved by Doha, registering above 80% during 2014, predominantly due to the markets limited supply and 2 BR market has witnessed a decrease of 3.3% in occupancy during 2014, with a market average of 79%. This is attributed to the decline in the Rouble and Euro in 2014, as well as the influx of new serviced apartment supply that year. 3 BR 126 Manama 134 Muscat 139 GCC Avg. 75 Singapore Avg. 75 London Avg. When compared to mature international markets (i.e. London and Singapore), cities such as Doha, Dubai, Riyadh, and Muscat have achieved similar occupancy levels, between 75% - 85%. However, serviced apartments in London and Singapore have historically commanded higher average rates due to the advanced nature of these markets, which also have higher operational costs. Nonetheless, as GCC economies grow, it is likely that serviced apartments will be able to command similar rates to those in international mature markets. Studio 1 BR 2 BR BR N/A GCC SERVICED APARTMENT PERFORMANCE, % % 60% 40% 50 20% 0 Manama Abu Dhabi Doha Jeddah Kuwait City Dubai Dammam & Khobar Riyadh Makkah Sharjah Muscat Madinah London Avg ADR Singapore Avg ADR 0 ADR (USD) Occupancy % London 2014 Occ% Singapore 2014 Occ% 7

8 GCC Serviced Apartments GCC SERVICED APARTMENTS DEMAND SEGMENTATION When looking at the segmentation of demand for serviced apartment within the analysed markets, it is long-stay than short or medium-stay demand. However, when looking at markets within the UAE and Saudi Arabia, it is noticeable that the majority of demand is generated by short stay guest, who visit for religious, visiting friends & relatives (VFR), leisure, and other purposes. The dominance of the short-stay segment within KSA, UAE, Oman, and Bahrain is linked to the fact that the by GCC nationals who typically travel in large family groups. As a result, these guest tend to prefer accommodation facilities which facilitate family time and self-catering services. Nonetheless, Doha, Dubai, and Abu Dhabi hold the largest share of long-stay demand due to the availability of quality supply (Internationally branded supply), which is represented by business travelers on assignment and relocating families. -stay segment within KSA, UAE, Oman, and Bahrain is linked to the fact that the majority of the analysed MIDDLE EAST SERVICED APARTMENTS FUTURE OUTLOOK SUPPLY The serviced apartments industry in the Middle East is expected to witness favourable growth, especially within the analysed markets. Dubai and Abu Dhabi are expected to witness the entry of approximately seven thousand keys over the next four to five years, 74% of which will be developed in Dubai. Sharjah still does not have any announced serviced apartment supply within its pipeline. Furthermore, the analysed Saudi Arabian cities are expected to absorb close to five thousand keys, with Riyadh, Al Khobar & Dammam representing a share of 22%, 23%, and 34% total announced forthcoming supply. In addition, Muscat, Doha and Manama are also expected to witness the entry of additional supply, while Kuwait, just like Sharjah, does not have any announced forthcoming serviced apartment supply in its pipeline. DEMAND expected to have both positive and negative impacts on the industry. Since the region is heavily reliant on the production of oil, corporate demand generated by oil companies is expected to decline, while it is possible for leisure demand to grow, assuming airlines reduce airfares as a result of the declining oil prices. CONCLUSION The GCC is expected to witness considerable growth in serviced apartment supply, however it is important to develop products suitable to both business travellers, relocating families, and leisure GCC families. GCC SERVICED APARTMENT DEMAND SEGMENTATION 100% 80% 60% 40% 20% 0% 10% 3% 5% 8% 11% 11% 7% 87% 96% 94% 89% 85% 88% 89% Riyadh Makkah Madinah Jeddah Dammam & Al Khobar 74% 15% 11% 12% 12% 12% 16% 16% 15% 72% 72% 73% 12% 80% Manama Muscat Doha Kuwait City Dubai Abu Dhabi Sharjah < 1 Month 1-6 Months > 6 months 8

9 Africa Serviced Apartments INTRODUCTION The serviced apartment industry in Africa is relatively undeveloped, as the majority of the regions supply is represented by unbranded and low quality stock. Although limited, quality serviced apartments (those with a 2-star rating or above) are available across Africa. Some examples include Arabian Nights Villas & Apartments (Dar As Salaam, Tanzania), La Maison Royale (Nairobi, Kenya), and Bricks Point Boutique Apartments (Abuja, Nigeria). In early October 2015, Marriott International successfully Marriott Executive Suites featuring 108 keys of 1 and 2 bedroom units in Addis Ababa, Ethiopia in partnership with Sunshine Business. The operator is planning to launch an additional 12 properties across the continent featuring a variety of its brands by This indicates the potential of the African market as international operators are considering the region as an important location for development. QUALITY SUPPLY DISTRIBUTION HOT SPOT: GHANA CURRENT SUPPLY Similar to elsewhere in the region, the available serviced apartment supply in Ghana is primarily represented by unbranded and locally branded establishments. However, some quality establishments do exist, such as Roots Apartment Hotel. Typically, serviced apartment properties in Ghana are comprised of a small number of keys, mostly featuring 1 and 2 bedroom units. Despite the lack of internationally branded serviced apartment supply, Accra holds a number of internationally branded hotels catering to business travellers, including the Mövenpick Ambassador Hotel Accra, Golden Tulip Accra, Novotel Accra City Centre, and Holiday Inn Accra Airport. DEMAND Demand for long-stay accommodation in Ghana is on the total arrivals in 2013, which is forecasted to grow an thriving oil sector. The markets, accounting for 8% and 10% of inbound arrivals, respectively, while Nigeria and the Ivory Coast are the top two regional source markets, accounting for 8% and 7% of total inbound arrivals respectively. The Ghana Tourism Authority (GTA) is currently targeting Asian countries to expand its source markets, particularly from Malaysia and China. CONCLUSION Given the expected growth in business travel to Ghana, and markets, it is expected that demand for long-stay accommodation will grow. Therefore, an opportunity lies in developing quality serviced apartment establishments, targeting business travellers from the US, UK, Malaysia and China AFRICA SERVICED APARTMENTS SUMMARY Cairo, Egypt Marrakesh, Morocco Accra, Ghana Lomé, Togo Abuja, Nigeria Dar As Salam, Tanzania Nairobi, Kenya No. of Serviced Apartment Properties No. of Keys 4 77 The current supply of serviced apartments consists primarily of unbranded establishments, a minority of which provide quality services and facilities. As African economies grow and develop, demand for long-stay accommodation is expected to rise, highlighting the opportunity for international operators to enter partnerships with local and regional developers, in an effort to cultivate and improve the quality of long-stay accommodation in Africa. enter partnerships with local and regional 9

10 Consumer Trends & Guest Experience IndexTM INTRODUCTION This section analyses online guest ratings from August 2015 which have been extracted by Olery and captures a number of scoring matrices from various review sites and online travel agents. The Guest Experience Index (GEI) has been developed by Olery in conjunction with the VU University being the perfect top score). Overall, to develop the ratings and rankings within this section, we have analysed data from a total of 140,000 reviews on various properties within the Middle East have been analyzed. ONLINE RATING I: SERVICED APARTMENTS VERSUS HOTELS (AUGUST 2015) The below summarizes the key differences in scoring results between Serviced Apartment and Hotel properties in the Middle East based upon data provided by Olery: Cleanliness. In KSA, UAE and Egypt, serviced apartments have a poorer cleanliness rating than in 3- star hotels; which suggests an evident gap in quality serviced apartments. In Qatar, however, serviced apartments are rated better than hotels. This can be linked to the high performance of several serviced apartment properties, within the market. Better value than hotels. Serviced apartments and 5- star hotels in the region have the highest rating in terms of value (better than 3 and 4-star hotels). When considering purely the internationally branded market, serviced apartments received a better value-rating than 5-star hotels. Branded serviced apartments lead the Guest Experience Index (GEI). Internationally branded serviced apartments achieved a higher GEI than 3, 4 and 5-star branded hotels in the region. ONLINE RATING II: SERVICED APARTMENT BY TYPE OF BRANDING (AUGUST 2015) The below table presents the key differences in scoring results between Unbranded, Locally Branded, Regionally Branded and Internationally Branded, Serviced Apartment properties within the Middle East based upon data provided by Olery. Overall Unbranded Locally Branded Regionally Branded Internationally Branded Guest Experience Index (GEI) Room Rating Value Rating Source: Olery, Colliers International Note: Ratings are out of 100 Service Rating Location Rating Best and worst by type of rating Cleanliness Rating As of August 2015, internationally branded serviced apartments consistently out perform unbranded, locally branded and regionally branded properties in the region in each of the scoring segments namely room rating, value, service, location and cleanliness. Overall, Internationally branded serviced apartments received a significantly higher GEI than unbranded ones, 84% versus 73.1%. 10

11 Consumer Trends & Guest Experience IndexTM ONLINE RATING III: MAP GEI SCORING FOR SERVICED APARTMENTS BY CITY (AUG 2015) 74% Alexandria 77% Cairo 82% Hurghada 81% Beirut 79% Sharm El Sheikh 68% Amman 73% Aqaba 70% Jeddah 72% Madinah 58% Makkah 72% Kuwait City 73% Riyadh 73% Al Khobar 71% Doha Airport Marina JBR 82% 80% 81% 77% Manama 75% Doha 82% & City Centre West Bay & Diplomatic Area Sheikh Zayed Road & DIFC 77% Dubai 82% Abu Dhabi Dubai Creek & Festival City 70% Sharjah 76% Muscat 75% Ras Al Khaimah 72% Fujeirah Source: Olery; Colliers International ONLINE RATING III: RANKING GEI SCORING FOR SERVICED APARTMENTS BY CITY (AUG 2015) Rank City/ Area Scoring 1st Doha - West Bay/Diplomatic Area 82.3% 2nd Hurghada 82.2% 3rd Abu Dhabi - Overall 81.9% 4th Dubai - Marina /JBR 81.7% 5th Dubai - Creek/Festival City 80.9% 6th Beirut 80.6% 7th Dubai - Sheikh Zayed Road/DIFC 80.1% 8th Sharm El Sheikh 78.9% 9th Cairo 77.5% 10th Manama 77.4% 11th Dubai - Overall 77.4% 12th Muscat 76.4% 13th Ras Al Khaimah 75.2% 14th Doha - Overall 74.7% 15th Alexandria 74.1% 16th Riyadh 73.3% 17th Al Khobar 73.1% 18th Aqaba 72.6% 19th Kuwait City 71.9% 20th Fujairah 71.8% 21st Madinah 71.6% 22nd Doha - Doha Airport / City Centre 70.8% 23rd Jeddah 70.2% 24th Sharjah 69.9% 25th Amman 67.8% 26th Makkah 58.3% Source: Olery, Colliers International SUMMARY: KEY FINDINGS ONLINE RATINGS (AUG 2015) Connected to a hotel provides higher guest rating Top Rated Brands Source: Olery, Colliers International Poor Cleanliness Offer Good Value Six of the 8 highest rated brands with serviced apartment units were hotel brands, or connected to a hotel. In August 2015, top rated brands for serviced apartments were Rosewood Residences, Residence Inn, Jumeirah, W Hotels, Grand Hyatt, Mercure, Staybridge Suites and Shangri-La. In KSA, UAE and Egypt, serviced apartments have a lower cleanliness rating than 3, 4 and 5-star hotels, mostly due to poor management. Internationally branded serviced apartments are rated as higher value than branded 3, 4 and 5- star hotels. 11

12 Legal Contribution: Al Tamimi & Company SERVICED APARTMENT RENTAL POOL STRUCTURING CONFLICTING INTERESTS AND DEVELOPER RISKS In the following pages, we provide a comparative analysis of the typical developer risks associated with a branded residence rental pool arrangement, together with observations on stakeholder conflicting interests. TYPICAL STAKEHOLDERS WITHIN A RENTAL POOL ARRANGEMENT Hotel Operator High OPTION 1: Hotel & Serviced Apartments with mandatory rental pool Maximum protection for Developer: retains ownership of the Hotel and hotel facilities (e.g. gym, spa, pool etc.) Costs and service charges for common areas and shared facilities, with operating expenses deductible from unit revenue prior to distribution of profit share Where Hotel and Serviced Apartments are in the same building, with 1 OA, due to its size the Hotel has voting control within the OA Risk of withdrawal of the unit from the rental pool, giving rise to risks outlined in Option 2 OPTION 2: Hotel & Serviced Apartments with optional rental pool Greater risk and exposure to non-rental pool unit owners Voting control at OA is lower, but mitigated if Hotel and Serviced Apartments are in the same building with 1 OA Risk of late or non payment of services charges for common areas and shared facilities, increasing risk to Developer under the Hotel Agreement with Operator, Developer OPTION 3: Serviced Apartments sold subject to a mandatory rental pool (no hotel) Maximum protection for Developer as above Risk of withdrawal of the unit from the rental pool, giving rise to risks outlined in Option 2 Unit Owner OPTION 4: Serviced Apartments sold subject to an optional rental pool (no hotel) Source: Al Tamimi & Company Owners Association (OA) Greater risk and exposure for Developer Operator may require Developer to retain a minimum amount of unit inventory in its own name for guaranteed room inventory for daily sales and voting control at OA Reduction of profit for Developer as less units to be sold Risks outlined in Option 2 Al Tamimi & Company is the largest law firm in the Middle East with 16 offices across 9 countries. The firm has unrivalled experience, having operated in the region for over 25 years. Our lawyers combine international experience and qualifications with expert regional knowledge and understanding. We have a dedicated Hospitality team covering the MENA region, consisting of over 20 lawyers, each an expert in their own legal specialism with experience of providing advice and service to our clients operating within the hospitality industry. Al Tamimi MEA Serviced Company Apartments Oct 2015 Hotels Colliers

13 Legal Contribution - Al Tamimi & Company CONFLICTING STAKEHOLDER INTERESTS AND ALIGNMENT OF INTERESTS Operator Interest Unit Owner Interest Developer Interest Requirements for Alignment of Interests Issue : Preservation of the Requirement to Invest in a financially manage rental pool attractive project with a to maximise reputed Operator adding revenues and value through its brand remuneration Transparency of cost allocation and profit distribution High right to operate and manage Sale of branded units on best commercial terms, Management Agreement signed by Developer and Operator Constitutional documents under Strata laws Lease Agreement between Developer and Unit Owner, with transparency on Operator appointment, cost allocation and profit share Issue : Multiple participants in the rental pool Avoid direct dealings with Unit Owners Deal directly with Developer Through OA, with voting rights delegated to the Developer under the Lease Agreement Flexibility to withdraw the Unit from the rental pool Issue : Preservation of Units in the Rental Pool Maximise inventory Flexibility to withdraw the Unit from the rental pool Issue : Control over shared facilities (pool, leisure deck, spa, gym etc) Maintain control and Right of use during periods management of private occupation Define services and pricing Compliance with Strata laws and transparent disclosure of costs and profit share Developer acts as intermediary between Unit Owners, OA and Operator through its position as tenant of the Unit under the Lease Agreement and appointment as OA manager and Facility Manager Create a successful scheme to increase unit sales Allow Operator control rather than OA to enhance performance and revenues Issue : Cost allocation for management and maintenance of the Units Management in Transparency on costs and Create a successful scheme compliance with allocation to increase unit sales Brand standards Compliance with Regulatory Cost allocation to requirements Unit Owners and Developer for repairs, maintenance and FF&E replacement Transparency on budgeting, cost allocation and profit share Provision for withdrawal from rental pool subject to notice effective at year end Payment of termination fee by Unit Owner to withdraw Transparency in sales documentation on Operator control and management Rights of personal use given Transparent allocation of costs Use of Building Management Statement Regulation of cost contribution in the Lease Agreement Regulation of cost contribution to common area and shared facility costs regulated in sales documentation, FM agreement, Building Management Statement and Jointly Owned Property Declaration Apportionment pro rated against unit area Issue : Brand Protection Non-interference Benefit from Brand to Competition maximise return on Compliance with investment Brand Standards create a successful scheme Management Agreement protects Brand for Units in rental pool Restrictions on Unit owners contained in Unit sales documentation and JOPD 13

14 Legal Contribution - Al Tamimi & Company FREQUENTLY ASKED QUESTIONS - The existence of strata/multiple ownership legislation, including the creation and rights of Associations and their members, greatly impact the structuring of rental pool schemes and the various positions thereunder. In Dubai, the regulation of such arrangements by the Real Estate Regulatory Agency has been in place for some time now and we have set out below some key information on OAs within the Emirate. What laws apply to Owners Associations in Dubai? High The current legislation pertaining to Owners Association in mixed ownership or strata buildings in Dubai comprises: Law No. (27) of 2007 Concerning the Ownership of Jointly Owned Properties in the Emirate of Dubai Owned Property. The Jointly Owned Property Law is also supplemented with what are known as the which comprise the following: (1) the Direction for General Regulation; (2) the Direction for Jointly Owned Property Declaration; (3) the Survey Directions; and (4) the Direction for Constitution Regulation. Are there any procedures for the establishment of an Owners Association that need to be followed? In accordance with the Jointly Owned Property Law, an Owners Association comes into existence from the moment the first Unit in the development is transferred from the Developer to another party. Such an occurrence would generally correspond with the completion and handover of the Project to the investors. Notwithstanding the above, it is important to note that although there are many prescribed procedures for creating Owners Associations there are very few with legal capacity. An Owners is usually instigated through RERA after the Project is handed over to investors. Are there any rules and regulations pertaining to the operation of an Owners Association in Dubai? The procedures for the operation of an Owners Association are set out in the Direction for Association Constitution and the Jointly Owned Property Declaration. The first General Assembly should be called within three (3) months of the creation of the Owners Association though (for the reasons expressed above) the practice in this regard may vary. A General Assembly must thereafter be convened not less than once per annum. The quorum for a General Assembly is fifteen percent (15%) of the total of the Project. Entitlements are based on the area of a Unit as a proportion of the area of all Units in the Project or such other criteria as RERA may permit. Generally speaking decisions of the Interim/Owners Association are made by Ordinary Resolution being a resolution of fifty percent (50%) of the votes of those present at a quorate General Assembly. Board members are appointed by ballot and changes to the Jointly Owned Property Declaration must be by being seventy five percent (75%) of the total Entitlement for the Project. Who is responsible for the operation of the Owners Association and management of the Project? Due to the limitations on the legal capacity of Owners Associations, much of the management of the Project will depend on either the Developer or the Association Manager. Some Developers are happy for owners to be very involved and treat the resolutions of the Interim Owners Association as lawful directions. Other Developers set up their own Association Management companies and remain heavily involved in the day to day management of their Developments. Pursuant to the Directions, once an Owners Association is licensed then the day to day operation of the Owners Association and management of the Project would be undertaken by the Association Manager who would seek direction from the Board of the Owners Association (being members (owners) elected at the General Assembly). Certain powers are however vested in the owners of the Units at a General Assembly. Such powers include the right to appoint Board members, the right to approve the Association Manager and the obligation to approve the annual budget. For further information please contact: Tara Marlow Partner and Regional Head of Hospitality Al Tamimi & Company Phone: t.marlow@tamimi.com

15 Colliers International Hotels Colliers International Hotels division is a global network of specialist consultants in hotel, resort, marina, golf, leisure and spa sectors, dedicated to providing strategic advisory services to owners, developers and government institutions to extract best values from projects and assets. The foundation of our service is the hands-on experience of our team combined with the intelligence and resources of global practice. Through effective management of the hospitality process, Colliers delivers tangible financial benefits to clients. With offices in Dubai, Abu Dhabi, Jeddah, Riyadh and Cairo, Colliers International Hotels combines global expertise with local market knowledge. SERVICES AT A GLANCE The team can advise throughout the key phases and lifecycle of projects Destination / Tourism / Resort / Brand Strategy Market and Financial Feasibility Study Development Consultancy & Highest and Best Use Analysis Operator Search, Selection and Contract Negotiation Pre-Opening Budget Analysis and Operational Business Plan Owner Representative / Asset Management / Lenders Asset Monitoring Site and Asset Investment Sale and Acquisition/Due Diligence RICS Valuations for Finance Purposes and IPOs Our hotels team in the MENA region: $9 39,200 8,880 billion keys Hotel keys investment value of valued under asset management projects advised 15

16 502 offices in 67 countries on 6 continents United States: 151 Canada: 46 Latin America: 26 Asia Pacific: 190 EMEA: 89 $2.3 billion in annual revenue 1.7 billion square feet under management For further information, please contact: Filippo Sona Director Head of Hotels MENA Region Main Mobile filippo.sona@colliers.com Selim El Zein Associate Director Hotels MENA Region Main Mobile selim.elzein@colliers.com Ian Albert Regional Director MENA Region Main Mobile ian.albert@colliers.com Colliers International MENA Region Dubai United Arab Emirates ,300 professionals and staff About Colliers International Colliers International is a global leader in commercial real estate services, with over 15,800 professionals operating out of more than 502 offices in 67 countries. Colliers International delivers a full range of services to real estate users, owners and investors worldwide, including global corporate solutions, brokerage, property and asset management, hotel investment sales and consulting, valuation, consulting and appraisal services and insightful research. The latest annual survey by the Lipsey Company ranked Colliers International as the second-most recognized commercial real estate firm in the world. In MENA Colliers International has provided leading advisory services through its regional offices since Colliers International currently has four corporate offices in the region located in Dubai, Abu Dhabi, Riyadh and Jeddah. colliers.com Colliers International, 2015 The information contained herein has been obtained from sources deemed reliable. While every reasonable effort has been made to ensure its accuracy, we cannot guarantee it. No responsibility is assumed for any inaccuracies. Readers are encouraged to consult their professional advisors prior to acting on any of the material contained in this report.