Hotels & Hospitality Group December Hotel Investor Sentiment Survey

Transcription

1 Hotels & Hospitality Group December 2013 Hotel Investor Sentiment Survey

2 Contributors David Green-Morgan Director Global Capital Markets Research Karen Wales Executive Vice President Research and Consulting Jessica Jahns Head of Research EMEA Lauro Ferroni Vice President Research and Strategic Advisory Americas Frank Sorgiovanni Vice President Research and Strategic Advisory Asia

3 Table of Contents Contributors Global Highlights Americas Highlights Short term level of optimism holds; suggesting long up-cycle Feature Market San Francisco Leveraged IRR requirements hold steady Cap rate expectations hold steady but expected to decline in short-term Americas Investment Intentions 12 Trading sentiment moderates in line with economic backdrop Feature Market Tokyo Asian mind shift causes regional IRR expectations to moderate 18 EMEA Highlights Trading expectations remain optimistic for EMEA Feature Market Barcelona Capitalisation rates expectations unchanged IRR requirements contract further EMEA Investment Intentions 24 Methodology Changes to the Hotel Investor Sentiment Survey Trading performance expectations Investment yield requirements Hotel investment cycle Glossary Jones Lang LaSalle s Hotels & Hospitality Group serves as the hospitality industry s global leader in real estate services for luxury, upscale, select service and 265 dedicated hotel and hospitality experts partner with investors and owner/operators around the globe to support and shape investment strategies that deliver estate advisor in the world totaling nearly US$25 billion, while also completing approximately 4,000 advisory, valuation and asset management assignments. The group s hotels and hospitality specialists provide independent and expert advice to clients, backed by industry-leading research. For more news, videos and research from Jones Lang LaSalle s Hotels & Hospitality Group, please visit: or download the Hotels & Hospitality Group s app from the App Store.

4 4 Hotels & Hospitality Group December 2013 Global Trading Performance Expectations 2000 to 2013^ Trading Performance Expectations^ Net Balance 60% 40% 0% - 31% 39% 45% 52% 40% 40% 41% 26% 19% Short Term Medium Term 37% -40% Short Term Medium Term -60% GLOBAL MAJOR GATEWAYS AMERICAS Net Balance APAC EMEA Investment Yield Requirements^ Short Term Cap Rate Trend^ GLOBAL MAJOR AMERICAS APAC EMEA GATEWAYS Leveraged IRR % 15.8% 14.6% 18.1% 13.0% 13.6% Cap Rate (Initial Yield) % 7.5% 6.9% 7.6% 7.5% 7.2% GLOBAL Slightly lower MAJOR GATEWAYS AMERICAS Neutral APAC EMEA Lower Lower Lower Global Leveraged IRR Requirements 2000 to 2013^ Investor Profile 24% 22% 18% 16% 14% Leveraged IRR % Global Cap Rate (Initial Yield) Requirements 2000 to 2013^ Short (0-4 years) 23% PE or RE Fund Intermediate (5-9 years) 45% Private 17% Long (10-20 years) 26% Developer 14% Extended (20 years+) 6% Institution 8% Listed REIT 4% Owner Operator 30% Other 7% 12% 11% 10% 9% 8% 7% 6% Cap Rate (Initial Yield) % ^ Weighted by the number of responses IRR = Internal Rate of Return Note: Net balance is the percentage of respondents who respond positively minus the percentage of respondents who respond negatively. The maximum score of + or 100% indicates that all respondents have given a positive or negative response respectively. A score of 0% indicates the same number of positive and negative responses to a particular question. Note 2: Major gateways include Bangkok, Barcelona, Chicago, Hong Kong, London, Los Angeles, Milan, Mumbai, Munich, Moscow, New York, Paris, Rome, San Francisco, Shanghai, Sydney, Tokyo, Washington D.C. and Vancouver.

5 December 2013 Hotels & Hospitality Group 5 Major Gateways Stage in the Investment Cycle^ PEAK Global Highlights EMEA, Americas LATE UPTURN EARLY UPTURN EARLY DOWNTURN LATE DOWNTURN Asia Pacific TROUGH Short Term Investment Intentions^ GLOBAL MAJOR GATEWAYS AMERICAS 0% ASIA PACIFIC EMEA 100% Acquisition Development Disposal

6 6 Hotels & Hospitality Group December 2013 Americas Highlights

7 December 2013 Hotels & Hospitality Group 7 Short term level of optimism holds; suggesting long up-cycle encouraging across North America, and hotel performance is exhibiting steady growth, with many markets reaching their pre-recession occupancy peaks. Driven by more positive hotel the sector than they did at the onset of the recovery. Survey respondents have favourable expectations for hotel performance increases, though the optimism is tempered slightly in several gateway markets where growth has been more sluggish in That said, hotel investors across the Americas remain Americas Trading Performance Expectations ^ 80% 60% 40% Trading Performance Expectations AM Average* Atlanta Boston Caribbean Chicago Dallas Denver Hawaii Houston Los Angeles Miami Montreal Net Balance 0% - -40% New York Orlando Philadelphia Phoenix -60% Short Term Medium Term Note: ^ Weighted by the number of responses Topping the list in terms of investors net balance of positive performance expectations are Boston, Los Angeles, Miami, San Francisco and Seattle. The net balance represents the percentage of respondents who indicate a positive performance outlook, minus the proportion of respondents who expect negative performance for the given time frames. These markets are among the most favoured cities globally in terms of their hotel performance outlook. New York ranks high as well, given the city s ever-increasing international traveller arrivals and the sought-after gateway status, though for the two-year outlook, investors responses exhibited some tempering in performance expectations, largely attributable to the considerable new hotel construction pipeline in the city. The market has the highest amount of rooms under construction of any U.S. city, but demand is outstripping supply and is at an all-time high. San Diego San Francisco Seattle Toronto Vancouver Washington D.C. - 0% 40% 60% 80% 100% Short Term Net Balance Medium Term Note: * Weighted by the number responses

8 Feature Market San Francisco 8 Hotels & Hospitality Group December 2013 In its third year of double-digit growth in revenue per available room, San Francisco is experiencing among the highest growth pipeline is minimal, given the market s high barriers to entry. Investor expectations for hotel performance for San Francisco are among the highest in the U.S., with a positive net balance sentiment of 71.9% for the short term and 71.5% for the medium term. The investor outlook for San Francisco is the highest among the West Coast cities surveyed. Furthermore, the medium term outlook marks a higher premium than in the Americas on average, suggesting that investors feel that San Net Balance Leveraged IRR % Cap Rate (Initial Yield) % 100% 80% 60% 40% 0% - -40% -60% -80% -100% 24% 23% 22% 21% 19% 18% 17% 16% Trading Performance Expectations 2000 to 2013 ^ 11% 10% 9% 8% 7% Leveraged IRR Requirements 2000 to 2013 ^ Short Term Medium Term Expectations for leveraged IRRs in San Francisco have held steady at 17.3% over the past six months, and are nearly a full percentage point below the Americas average given investors positive view of the market. Surveyed capitalisation rates for the market average 6.7%, the lowest in the U.S. aside from New York. Deal volume has decreased by 35.0% year-on-year, but transactional activity is poised to tick up. With the city s positive performance, the ratio of buyers or sellers, according to the survey, is actually below the North America average given that some investors are seeking to hold onto their investments. This implies that assets that come to market will experience strong interest from a diverse group of equityrich buyers. Leveraged IRR Cap Rate (Initial Yield) Requirements 2000 to 2013 ^ Cap Rate (Initial Yield) In the most recent survey, amid the positive overall backdrop, several gateway cities recorded a decline in investors positivity. Washington, D.C., for instance saw a 30.0 point decrease in the net balance of investors positive performance sentiment for the short-term (six months). and government sequestration and the temporary government shutdown in October kept the lid on growth. The market is also set to see a notable supply increase in Investors are therefore cautious about the next six months, but the two-year outlook for the city is slightly more positive than the North American average, providing assurance that the market remains high on investors target list once the temporary hesitation passes. Cities where investors have less heady expectations include Phoenix, Philadelphia, Orlando and Atlanta. Markets such as Phoenix and Orlando continue to face group room nights that are below the previous peak. Philadelphia and Atlanta have relatively constrained supply pipelines but the responses suggest that investors expect less enthusiastic growth than what was witnessed in 2012 and Of the three Canadian markets, Vancouver s performance outlook is most encouraging, followed by Toronto. This survey previously also covered key markets in Latin America; given the emerging fundamentals and rising investment activity in the region, we have spun off our coverage of the region into our dedicated and separate, which covers 18 markets across the region. In terms of investors target strategies for the next six months, 49.5% of respondents are primarily pursuing acquisitions, while 31.6% are focusing on selling assets marking a 4.0 point increase in sellsentiment. This should continue to lead to an increase in transactions activity across the country; investment volume is poised to reach a six-year high in The list of hotly contested markets cities with the highest ratio of buyers to sellers includes Washington, D.C., Seattle, Vancouver, Los Angeles and Houston which suggests that these markets could be among the more liquid over the next six months. The proportion of respondents citing development as their main strategy, at 18.9%, saw a 2.0 point increase, as the pace of new room additions has troughed and is expected to show a minor uptick going forward. However, the proportion of investors citing development intentions is lowest for North America of the global regions in this survey, underlining the expectation that supply additions will continue to remain below the long-term average in the U.S. and Canada. 6% Note: ^ Weighted by the number of responses

9 December 2013 Hotels & Hospitality Group 9 According to the survey, development intentions are highest in Los Angeles, Boston and Houston and lowest in Atlanta, Phoenix, and Philadelphia. While debt markets have loosened considerably replacement cost. Leveraged IRR requirements hold steady Expectations for leveraged IRRs across North America have held steady as economic risks are lessening and most hotel markets remain on a steady growth trajectory. Across the board, investors are targeting leveraged IRRs of 18.1%. Leveraged IRR expectations stand at the lowest point since mid-2006 and a full 60.0 basis points below the most recent three-year average. Leveraged IRR % 19% 18% 17% 16% 15% 14% 13% 12% 11% 10% Americas Average Leveraged IRR Requirements New York San Francisco Miami Washington D.C. Boston San Diego Los Angeles Chicago Seattle Hawaii Houston Denver Toronto Dallas Atlanta Vancouver Philadelphia Orlando Phoenix Montreal Caribbean Leveraged IRR % Americas Leveraged IRR Requirements 2000 to 2013 ^ 24% 23% 22% 21% 19% 18% 17% 16% 15% Americas Leveraged IRR Note: ^ Weighted by the number of responses This on-going tightening in leveraged IRRs is driven by gateway markets; New York and San Francisco exhibited the lowest IRR requirements at 17.0% and 17.3%, respectively. With strong performance and little upcoming supply additions, Boston, Hawaii and Los Angeles all garnered IRR requirements of below 18.0%. Markets where survey respondents have higher requirements for leveraged IRRs include the Caribbean, Montreal, Toronto and Phoenix. Highly-rated CMBS spreads are at post-crisis lows and have tightened further since October and new CMBS issuance is at a an abundance of equity continue to bolster activity. Even if interest rates exhibit a minor uptick, the overall greater liquidity should see margins compress, keeping overall debt costs stable and not diminish investor activity. Cap rate expectations hold steady but likely to decline in short-term Across the Americas, investors targeted capitalization rates (initial yields) stayed steady at 7.6% in this survey. Respondents expected cap rates are now on par with levels recorded in late 2006 and among the lowest on record. Cap rate expectations are 40.0 basis points below the most recent three-year average, with the decrease driven by lower cost of debt and the high amount of equity pursuing the sector, which is resulting in asset value appreciation. U.S., which should put further downward pressure on credit spreads. Treasury markets have stabilised and yields remain low historically. Capital from domestic and international sources remains abundant to support varying levels of investor appetite.

10 10 Hotels & Hospitality Group December 2013 America s Cap Rate (Initial Yield) Requirements 2000 to 2013^ 12% 11% 10% 9% 8% 7% Americas Yield (Cap Rate) Note: ^ Weighted by the number of responses Across markets surveyed in the region, respondents have the lowest cap rate expectations for Hawaii, San Francisco, and New York. Philadelphia and Houston rank in the middle of the pack, and investors have the highest cap rate expectations for Orlando and Phoenix markets which are earlier in the recovery cycle and thus investors expect cap rates to witness a further downward trend over Short Term Cap Rate Trend AM Average* Atlanta Boston Caribbean Chicago Dallas Denver Hawaii Houston Los Angeles Miami Montreal New York Orlando Philadelphia Phoenix San Diego San Francisco Seattle Toronto Vancouver Washington D.C. -30% - -10% 0% 10% 30% Net Balance (Positive/Higher and Negative/Lower) Cap Rate (Initial Yield) Requirements Note: * Weighted by the number of responses Cap Rate (Initial Yield) % 12% 11% 10% 9% 8% 7% 6% 5% 4% New York San Francisco Boston Miami San Diego Hawaii Washington DC Los Angeles Chicago Seattle Vancouver Houston Toronto Denver Philadelphia Atlanta Dallas Montreal Orlando Phoenix Caribbean Americas Average

11 December 2013 Hotels & Hospitality Group 11 Americas Investment Intentions Stage in the Investment Cycle^ Boston, Hawaii, Miami, New York, San Diego, San Francisco Atlanta, Caribbean, Chicago, Dallas, Denver, Houston, Los Angeles, Montreal, Orlando, Philadelphia, Phoenix, Seattle, Toronto, Vancouver Washington D.C. Investor Profile LATE UPTURN EARLY UPTURN PEAK TROUGH EARLY DOWNTURN LATE DOWNTURN Most Acquisitive Groups investment fund Exposure to Hotel Real Estate Short Term Investment Intentions AM AVERAGE^ SEATTLE WASHINGTON D.C. ATLANTA VANCOUVER SAN DIEGO DENVER DALLAS HOUSTON PHOENIX LOS ANGELES SHORT TERM MEDIUM TERM Short (0-4 years) 34% PE or RE Fund 23% Intermediate (5-9 years) 40% Private 18% Long (10-20 years) 22% Extended (20 years+) 4% Developer 10% Institution 8% Listed REIT 4% Owner Operator 29% Other 8% DECREASE MAINTAIN INCREASE Hot Markets ACQUISITION DEVELOPMENT DISPOSAL Seattle Washington D.C. Atlanta Los Angeles Houston Boston Orlando Philadelphia Phoenix 0% Acquisition Development 100% Disposal Planned Nature of Investment 28% New hotel acquisition opportunities 21% New conversion acquisition opportunities 16% Refurbishment of existing stock 13% Acquisition of land for development 11% New hotel management opportunities 6% New hotel lending opportunities 5% Development of land-banked stock Ratio of Buyers to Sellers Orlando Montreal Philadelphia Hawaii Phoenix Caribbean San Francisco Dallas New York Chicago Miami AM Average^ Toronto Atlanta Denver Boston San Diego Houston Los Angeles Vancouver Seattle Washington D.C. 61% 67% PHILADELPHIA CHICAGO TORONTO 33% MIAMI NEW YORK 6% 12% 21% BOSTON CARIBBEAN MONTREAL SAN FRANCISCO HAWAII ORLANDO Note: ^ Weighted by the number of responses

12 12 Hotels & Hospitality Group December 2013 Highlights

13 December 2013 Hotels & Hospitality Group 13 Trading sentiment moderates in line with economic backdrop slightly in our most recent survey with sentiment for short term declining by 8.1 points compared to April 2013 to 25.5% and medium term recording no change at 40.5%. of 2013 as growth in China slowed, affecting industrial activity in much of emerging Asia. By contrast, Japan was the main bright spot, and private consumption. This led to a year of mixed results for Asia and others previously galloping pausing to catch their breath. According to the International Monetary Fund, global growth is in low gear and the drivers of activity are changing. Growth for Asia 5.25% percent in Growth rates are therefore above those of the advanced economies, but below the elevated levels seen in recent years. Tighter external funding conditions and homegrown structural impediments in a few countries are expected to weigh on growth in emerging Asia, but counteracting forces include stronger growth in advanced economies, weaker currencies, and robust domestic demand. As Asia s growth moves to a lower gear, investors will increasingly discriminate across countries according to their market fundamentals. regions as the hotel industry s growth engine with investor sentiment for trading averaging 36.0% over the short term and 45.7% for the medium term and a level which is around 10.0 basis points higher than the next most favoured regions of North Asia & Oceania. Whilst all markets are expected to perform well, investors are most optimistic for short term trading in Bangkok and Singapore. Bangkok s hotel market was showing promising signs, having in inbound arrivals throughout The resurfacing of political tensions, ahead of the peak tourism season, is likely to result in investor sentiment for short term trading moderating compared to our October survey. Short term trading expectations are highest for the major gateways Tokyo (61.7%), Sydney (43.8%), Bangkok (42.4%), Hong Kong (41.7%) and Singapore (40.3%). Net Balance 80% 60% 40% 0% - -40% -60% Short Term Note: ^ Weighted by the number of responses Medium Term Medium term trading expectations remain in line with the previous survey at 40.5%. Sentiment is strongest for Tokyo (76.0%), Bangkok (59.2%), Sydney (53.3%) and Jakarta (52.9%). Medium term trading sentiment for Tokyo is the highest in our survey for any market in the post-crisis era and highlights the current level of optimism for the city s hotel market. This was further boosted by the recent announcement that Tokyo would host the Olympic Games in The outlook for Sydney s accommodation market remains promising with real RevPAR projected to surpass the 2007-peak in 2013 as occupancy levels remain robust and ADR growth strengthens. Some uncertainty prevails following the recent closure of the Sydney Convention & Exhibition Centre (ahead of its redevelopment) and a lack of blockbuster events in 2014 which may result in a sentimentdriven short term lull, albeit largely unwarranted given the likelihood of occupancies remaining in the low to mid-80% range. Offsetting this, will be a gradual recovery in the domestic corporate segment as the NSW economy reacts positively to lower interest rates and as major infrastructure projects commence. markets we track, namely short term trading in Mumbai (-25.9%), New Delhi (-25.0%) and Beijing (-16.9%). All three markets are expected to return to growth albeit modest over the medium term.

14 Feature Market Tokyo 14 Hotels & Hospitality Group December 2013 Tokyo ranks highest for short and medium term trading in our most recent survey with both metrics currently at the highest level market in the post crisis era. Net Balance 100% 80% 60% 40% 0% - -40% -60% -80% Trading Performance Expectations 2000 to 2013^ Short Term Medium Term Investor expectations for trading have increased compared to April 2013 with sentiment for short term trading up 11.1 points to 61.7% and medium term up 6.0 points to 76.0%. Japan s growth upswing has been a bright spot in the region over the past year as Abenomics has reignited the economy depreciation of the Japanese yen along with a loosening in visa restrictions has also sparked strong growth in inbound arrivals, most notably from Asia. Leveraged IRR % 19% 18% 17% 16% 15% 14% 13% 12% Leveraged IRR Requirements 2000 to 2013^ Leveraged IRR AP Average* Auckland Bali Bangkok Beijing Brisbane Ho Chi Minh City Hong Kong Jakarta Kuala Lumpur Macau Manila Melbourne Mumbai New Delhi Osaka Perth Phuket Seoul Shanghai Trading Performance Expectations Expectations for Tokyo leveraged IRRs and initial yields both recorded a contraction when compared to April 2013, reducing by basis points and 30.0 basis points respectively to 11.1% and 6.0%. Expectations for leveraged IRRs are now at the lowest level ever recorded, whereas initial yields are 90.0 basis points higher than the June 2007 low of 5.1%. This indicates that there is further scope for a continued shift in hotel asset pricing. Investors expect cap rates in Tokyo to compress further over the next six months with many global and regional investors targeting acquisition opportunities in the city. Singapore Sydney Taipei Tokyo -100% -80% -60% -40% - 0% 40% 60% 80% 100% Short Term Note: * Weighted by the number of responses Source: Jones Lang LaSalle Net Balance Medium Term Cap Rate (Initial Yield) Requirements 2000 to 2013^ 11% Cap Rate (Initial Yield) % 10% 9% 8% 7% 6% Cap Rate (Initial Yield) 5% Note: ^ Weighted by the number of responses

15 December 2013 Hotels & Hospitality Group 15 Asian mind shift causes regional IRR expectations to moderate Expectations for leveraged IRRs contracted compared to April 2013, declining by basis points to average 13.0%. Leveraged IRR expectations are now at the lowest level recorded since the survey s inception in 2000, well below both the short and long-run averages of 16.1% and 17.4% respectively. Whilst investor expectations for leveraged IRRs in Australia/NZ tightened by basis points to 12.2%, the downward regional proportion of responses for Japan (where leveraged IRRs are typically lower). Leveraged IRR expectations for Asia declined by basis points in our most recent survey to average 13.3%. The potential scale and depth of Asia s hotel and tourism market is causing investors to rethink return expectations. Leveraged IRR % 17% 16% 15% 14% 13% 12% 11% 10% Asia Average Aus/NZ Average Leveraged IRR Requirements Auckland Bali Bangkok Beijing Brisbane Ho Chi Minh City Hong Kong Jakarta Kuala Lumpur Macau Manila Melbourne Mumbai New Delhi Osaka Perth Phuket Seoul Shanghai Singapore Sydney Taipei Tokyo Note: Regional averages are weighted by the number of responses strengthens Leveraged IRR % 22% 21% 19% 18% 17% 16% 15% 14% 13% 12% Asia Pacific Leveraged IRR Note: ^ Weighted by the number of responses Leveraged IRR expectations range between 11.0% in Singapore and 16.3% in Beijing. Markets ranked below the regional average include Singapore (11.0%), Sydney (11.6%), Hong Kong (11.8%), Tokyo (12.0%), Brisbane (12.0%), Melbourne (12.2%), Auckland (12.4%) and Osaka (12.7%). and equity along with a number of landmark transactions occurring across the region throughout basis points compared to April 2013 to be at the lowest level ever recorded averaging 7.5%. According to our survey, owner operators, private investors and private equity/real estate investment funds are Once again the downward trend is primarily being driven by Asia, average 7.5%. Cap rate expectations for Asia range between 6.0% at sub-7%, namely Tokyo (6.0%), Hong Kong (6.3%), Osaka (6.4%), (Singapore (6.6%) and Kuala Lumpur (6.8%).

16 16 Hotels & Hospitality Group December 2013 Requirements 2000 to 2013^ Investors expect to see a further tightening in cap rates over the next six months across the region but most notably in Manila, Ho Chi Minh City, Tokyo, Osaka, Melbourne, Shanghai, Singapore and Sydney. Cap Rate (Initial Yield) % 12% 11% 10% 9% 8% On the contrary, yields are expected to soften in Mumbai and New greater vulnerability of corporate and bank balance sheets in India and a further downward revision of growth forecasts, which were already low by historical measures. For some Indian hotel markets, lower growth is coinciding with an increase in supply but to date this has not triggered an asset re-pricing. Our survey indicates that investors expect this to eventuate over the next six months. 7% Asia Pacific Yield (Cap Rate) Note: ^ Weighted by the number of responses Cap rate expectations for Australia/NZ are slightly higher at 7.7%, between 7.1% in Sydney and 8.6% in Auckland. Australia remains a higher yield market by international standards and is therefore the higher interest rate environment in Australia. Cap Rate (Initial Yield) % 10% 9% 8% 7% 6% 5% 4% Aus N Average Asia Average Cap Rate (Initial Yield) Requirements Tokyo Hong Kong Osaka Singapore Kuala Lumpur Beijing Sydney Shanghai Macau Seoul Melbourne Taipei Perth Brisbane Bangkok Manila Bali Auckland Jakarta Phuket Mumbai New Delhi Ho Chi Minh City Note: Regional averages are weighted by the number of responses AP Average* Auckland Bali Bangkok Beijing Brisbane Ho Chi Minh City Hong Kong Jakarta Kuala Lumpur Macau Manila Melbourne Mumbai New Delhi Osaka Perth Phuket Seoul Shanghai Singapore Sydney Taipei Tokyo Short Term Cap Rate Trend -70% -60% -50% -40% -30% - -10% 0% 10% 30% 40% 50% 60% 70% Net Balance (Positive/Higher and Negative/Lower) Note: Regional averages are weighted by the number of responses

17 December 2013 Hotels & Hospitality Group 17 Stage in the Investment Cycle^ Singapore Bali, Bangkok, Hong Kong, Jakarta, Kuala Lumpur, Macau, Melbourne, Phuket, Sydney LATE UPTURN EARLY UPTURN Auckland, Beijing, Brisbane, Seoul, Shanghai, Taipei, Tokyo PEAK TROUGH EARLY DOWNTURN LATE DOWNTURN Perth, Mumbai Most Acquisitive Groups investment fund Short Term Investment Intentions AP AVERAGE^ AUCKLAND MELBOURNE SYDNEY PHUKET BANGKOK SINGAPORE OSAKA TOKYO Investor Profile Exposure to Hotel Real Estate SEOUL MUMBAI MEDIUM TERM 63% 76% HONG KONG Short (0-4 years) 15% PE or RE Fund 22% Intermediate (5-9 years) 48% Private 15% Long (10-20 years) 29% Developer 16% Extended (20 years+) 7% Institution 7% Listed REIT 4% DECREASE Hot Markets ACQUISITION DEVELOPMENT DISPOSAL Auckland Melbourne Sydney Manila Taipei Macau Hong Kong Singapore Bali Planned Nature of Investment 25% acquisition opportunities 19% acquisition opportunities 17% Refurbishment of existing stock 16% management opportunities 13% Acquisition of land for development 6% Development of land-banked stock 4% lending opportunities KUALA LUMPUR 0% Acquisition Development 100% Disposal Ratio of Buyers to Sellers Kuala Lumpur Bali Hong Kong Macau Beijing Perth Delhi Shanghai Brisbane Singapore Phuket Mumbai AP Average^ Tokyo Manila Ho Chi Minh City Bangkok Seoul Sydney Taipei Jakarta Melbourne Auckland HO CHI MINH CITY BRISBANE 33% JAKARTA BEIJING PERTH 4% 4% MAINTAIN INCREASE NEW DELHI TAIPEI SHANGHAI BALI MACAU MANILA Note: ^ Weighted by the number of responses

18 18 Hotels & Hospitality Group December 2013 EMEA Highlights

19 December 2013 Hotels & Hospitality Group 19 Trading expectations remain optimistic for EMEA As we approach the end of 2013, trading expectations across EMEA remain positive both for the short term (six months) and medium term (two years). Although short term trading expectations are still year. Sentiment for the medium term has also increased, with greater across EMEA, 21 are expected to show growth in performance over the next six months, rising to 28 when looking further ahead. Investor sentiment is highest for cities in Germany (Munich, Frankfurt and Hamburg), followed by London and Paris. Trading expectations remain particularly strong for Germany in both underlying market fundamentals. Sentiment remains the strongest for southern Germany s powerhouse Munich. Still the country s best performing hotel market; the city s standing as an international trade fair and congress destination continues to be one of Europe s most sought-after destinations for operators and investors. Trading expectations for Frankfurt, Hamburg and Berlin also remain positive. Just six months ago, the short term outlook for Scandinavia was relatively weak; however investors have become more optimistic about the future fuelled by a number of noteworthy deals across key cities such as Stockholm and Copenhagen in the third quarter of The feeling from investors about the Copenhagen market in particular has turned a corner. In our last survey, short term expectations were on the downside, however, they are now on the upside. both in the short and medium term. In London, short term trading expectations are strong as the post-olympic boom and a rise in performance. With hotel supply expected to grow circa 8.0% over the next two years, potentially forcing hoteliers to cap average rates, one might expect the medium term outlook to be more pessimistic, however, the survey results show that investors are more hopeful about trading expectations in the UK capital. Sentiment also remains positive in Edinburgh which continues to be an attractive location for both business and leisure visitors. As supply growth continues to challenge hoteliers in Birmingham, trading sentiment remains negative, however, in the medium term the outlook is more promising. Remaining one of Europe s best performing markets, the short and medium term trading expectations remain optimistic for the French capital Paris. With limited supply growth in the city and the second most visited destination in Europe (after London) according to the Master Card Global Destination Cities Index, it is no surprise the outlook is optimistic. In Eastern Europe, short term trading prospects remain relatively unchanged for Prague compared to our previous survey yet the medium term outlook is more optimistic with Q economic results for the Czech Republic showing some encouraging signs. In Warsaw, expectations for the short term are more encouraging now that the post-euro 2012 hangover has passed, however with RevPAR currently down 15.9% driven by declines in average rate, it could still take some time for the city to fully recover. Expectations for Budapest remain on the downside, although more hopeful than our previous survey results, most likely the result of the fragile economy and controversial government policies affecting Hungary s investment and business climate. Despite the cities already mentioned, some of the weakest results are in markets in Southern Europe, with investors anticipating trading performance to decline in Lisbon, Milan and Madrid over the next six Southern Europe which has a detrimental impact on domestic tourism. Investors are more optimistic about short term trading expectations in Rome and Barcelona, the latter which we have included as our feature market in this edition of the survey. The medium term outlook, two years. Since the last survey, investor sentiment in the Middle East s leading tourism destination Dubai has improved, for both the short and medium term. Although the number of new hotel rooms entering the emirate continue to grow (with a CAGR of 6.0% since 2010), overall demand remains strong, with almost 10 million visitor arrivals in Net Balance EMEA Trading Performance Expectations 2000 to 2013^ 80% 60% 40% 0% - -40% -60% -80% Short Term Medium Term

20 Feature Market Barcelona 20 Hotels & Hospitality Group December 2013 The global economic crisis had a profound impact on the Barcelona Improved economic conditions and a recovery in global travel led to a strong uptick in occupancy during 2010, fuelling double-digit RevPAR growth. Although growth slowed the following year, it has remained in positive territory ever since, despite the deepening economic crisis in Spain. The city has done well considering hotel supply has increased by more than 70% over the last 10 years. Net Balance 100% 80% 60% 40% 0% - -40% -60% -80% -100% Trading Performance Expectations 2004 to 2013^ Short Term Medium Term These results are compounded by the improvement in trading performance expectations by our survey respondents. In our previous report, short term trading expectations, although positive were rather cautious, with a positive net balance sentiment of 7.5%. Just six months later, investors are more optimistic, with a 31.7% positive net balance for the short term and 58.5% during the medium term, making Barcelona one of the top 10 cities in terms of Expectations for leveraged IRRs in Barcelona have fallen slightly over the last six months and at 12% they are 1.7% below the EMEA average, giving investors a positive view of the market. Survey respondents expect capitalisation rates to average at 7.1% in the short term, which is lower than the long term average of 7.7% meaning investors are willing to pay higher prices for assets by 70% of respondents showing an interest in acquiring hotel real estate in Barcelona. Leveraged IRR % 22% 21% 19% 18% 17% 16% 15% 14% 13% 12% 11% Leveraged IRR Requirements 2004 to 2013^ Leveraged IRR Capitalisation rates expectations unchanged Across EMEA, survey respondents expect capitalisation rate requirements to remain relatively steady over the next six months, increasing marginally to 7.2% compared to 7.1% in April Although investors are becoming increasingly optimistic about the future of hotel real estate across the region, they still remain cautious, which is from institutional investors keen to tap into the hotel market as they provide higher returns than alternative real estate options. Across the markets surveyed, respondents have the lowest cap rate expectations for Paris, London and Munich. These cities continue to attract the bulk of investor interest due to their historically strong trading performance and stable market environment. Increasingly we are seeing HNWI and Sovereign Wealth Funds looking to acquire trophy assets in key cities throughout Europe. Cap rate expectations in London remain the lowest across the UK at 6.0%, while Edinburgh, Manchester and Birmingham remain above the regional average at 7.3%, 7.4% and 8.0%. Markets which investors associate with more risk include Cape Town, Lisbon and Moscow. We must remember that pricing remains dependant on the asset and parties involved, where some are more risk adverse than others. According to the survey results, hotel owners and operators are the most acquisitive groups targeting EMEA hotel real estate, followed by Private Equity Funds. In terms of investors target strategies for the next six months, 45.5% are primarily focusing on acquisitions, with hot markets including Dublin, Manchester and Barcelona. This has fallen 11.4% since the last survey, which is somewhat surprising but may be signal a slight cooling increased volumes in 2013, some investors will be focused on asset managing assets acquired. On the sell side disposals have seen a 6.0 point increase to 29.1%, the second highest of all global regions in this survey. The remaining strategy that will be adopted by investors will be that of development at 25.3%. Cap rate (Initial Yield) Requirements 2004 to 2013^ Cap Rate (Initial Yield) % 11% 10% 9% 8% 7% Cap Rate (Initial Yield) 6% Note: ^ Weighted by the number of responses

21 December 2013 Hotels & Hospitality Group 21 EMEA Average* Amsterdam Barcelona Berlin Birmingham Brussels Budapest Cape Town Casablanca Copenhagen Dubai Dublin Dusseldorf Edinburgh Frankfurt French Riviera Hamburg Istanbul Lisbon London Madrid Manchester Milan Moscow Munich Paris Prague Rome Spanish Resorts Stockholm Vienna Warsaw Trading Performance Expectations -60% -40% - 0% 40% 60% 80% 100% Short Term Medium Term Net Balance Note: * Weighted by the number of responses IRR requirements contract further Expectations for leveraged IRR requirements across EMEA recorded a 10.0 basis point contraction since our last survey and currently sit at 13.7% the same levels required this time last year. This places IRR requirements some basis points below the most recent threeyear average. Leveraged IRR % 22% 21% 19% 18% 17% 16% 15% 14% 13% 12% EMEA Leveraged IRR Note: ^ weighted by the number of responses Leveraged IRR % 18% 16% 14% 12% 10% 8% 6% 4% 2% 0% EMEA Leveraged IRR Requirements 2000 to 2013^ EMEA Average Leveraged IRR Requirements Stockholm Munich Barcelona Rome Copenhagen Paris Madrid Amsterdam Berlin Vienna Frankfurt Hamburg London Edinburgh Dusseldorf Prague Spanish Resorts French Riviera Dubai Manchester Milan Brussels Birmingham Budapest Lisbon Warsaw Dublin Moscow Casablanca Istanbul Cape Town Stockholm reported the lowest IRR requirements at 11.6%, followed by Munich and Barcelona, at 11.7% and 12% respectively. At the other end of the market, Cape Town, Istanbul and Casablanca each reported an IRR requirement of more than 16%. An additional 11 markets reported above average IRR requirements including Dubai, Lisbon and Dublin. All cities across Germany reported below the regional average, underlining the stability of the German real estate market.

22 22 Hotels & Hospitality Group December 2013 EMEA Cap Rate (Initial Yield) Requirements 2000 to 2013^ Short Term Cap Rate Trend Cap Rate (initial Yield) % 12% 11% 10% 9% 8% 7% 6% EMEA Cap Rate Note: ^ weighted by the number of responses Cap Rate (Initial Yield) % 10% 9% 8% 7% 6% 5% 4% 3% 2% 1% 0% EMEA Average Cap Rate (Initial Yield) Requirements Paris London Munich Frankfurt Vienna Stockholm Dusseldorf French Riviera Hamburg Prague Madrid Rome Amsterdam Berlin Brussels Barcelona Dubai Edinburgh Milan Warsaw Manchester Budapest Copenhagen Birmingham Dublin Istanbul Spanish Resorts Casablanca Moscow Lisbon Cape Town EMEA Average* Amsterdam Barcelona Berlin Birmingham Brussels Budapest Cape Town Casablanca Copenhagen Dubai Dublin Dusseldorf Edinburgh Frankfurt French Riviera Hamburg Istanbul Lisbon London Madrid Manchester Milan Moscow Munich Paris Prague Rome Spanish Resorts Stockholm Vienna Warsaw -80% -60% -40% - 0% 40% 60% 80% Net Balance (Positive/Higher and Negative/Lower) Note: * weighted by the number of responses

23 December 2013 Hotels & Hospitality Group 23 EMEA Investment Intentions Stage in the Investment Cycle^ Munich Amsterdam, Barcelona, Berlin, Hamburg, London, Moscow, Paris, Prague, Stockholm, Vienna Birmingham, Budapest, Istanbul, Manchester, Rome, Warsaw LATE UPTURN EARLY UPTURN PEAK TROUGH French Riviera EARLY DOWNTURN LATE DOWNTURN Most Acquisitive Groups Brussels, Cape Town, Lisbon, Madrid, Milan, Spanish Resorts investment fund Short Term Investment Intentions EMEA AVERAGE^ DUBLIN MANCHESTER BARCELONA BIRMINGHAM MADRID COPENHAGEN LISBON ROME DUSSELDORF CAPE TOWN PARIS Investor Profile Exposure to EMEA Real Estate BERLIN SPANISH RESORTS BRUSSELS SHORT TERM MEDIUM TERM 66% 62% HAMBURG MILAN WARSAW AMSTERDAM Short (0-4 years) 21% Intermediate (5-9 years) 48% Private 23% Long (10-20 years) 26% Extended (20 years+) 5% Hot Markets ACQUISITION Dublin Barcelona Manchester PE or RE Fund 7% Developer 14% Institution 11% Listed REIT 4% Owner Operator 32% Other 9% DEVELOPMENT Casablanca Istanbul Moscow DECREASE MAINTAIN DISPOSAL INCREASE Vienna French Riviera Brussels Planned Nature of Investment 25% New hotel acquisition opportunities Refurbishment of existing stock 18% New conversion acquisition opportunities 14% Acquisition of land for development 5% Development of land-banked stock 5% New hotel lending opportunities MOSCOW CASABLANCA 0% Acquisition Development 100% Disposal Ratio of Buyers to Sellers 0.0 Casablanca Vienna Budapest Edinburgh French Riviera Prague Brussels Dubai Moscow Spanish Resorts Stockholm Munich Franfurt Warsaw Copenhagen Amsterdam Hamburg Milan EMEA Average^ Berlin London Birmingham Rome Paris Madrid Cape Town Dusseldorf Lisbon Istanbul Dublin Barcelona Manchester 8% 5% 30% 29% ISTANBUL LONDON FRENCH RIVIERA STOCKHOLM FRANKFURT MUNICH PRAGUE VIENNA BUDAPEST EDINBURGH DUBAI 13% New hotel management opportunities Note: ^ Weighted by the number of responses

24 24 Hotels & Hospitality Group December 2013 Methodology Changes to the Hotel Investor Sentiment Survey We have made a number of changes to the 2013 editions of the Hotel Investor Sentiment Survey in response to client feedback and to improve the accuracy of the results. As part of this review we have reduced the number of surveyed markets to focus on the top 75 global hotel investment markets, previously 96 markets. Historical results have therefore been re-stated in accordance with this change. We note that we also conduct a Trading performance expectations The survey represents investors expectations for trading performance in the short (six months) and medium (two years) term with results presented in line with the weight of opinion. Net balance is the percentage of respondents who respond positively minus the percentage of respondents who respond negatively. The maximum score of + or 100% indicates that all respondents have given a positive or negative response respectively. A score of 0% indicates the same number of positive and negative responses to a particular question. Results are averaged across all respondents for each region and are not weighted by the size of the market (i.e. number of investment grade rooms). Weighting is only conducted for the regional and global averages, based on the number of responses for each city. Investment yield requirements The survey represents the investment yield (cap rate) level required to consummate a transaction for a stabilised upscale asset, excluding repositioning through capital expenditure or new management focus. These yields are those that investors seek, while yields required to successfully secure an investment are likely to be lower than the Hotel Investor Sentiment Survey average. These yields should not be applied in any valuation or appraisal assignment. Results for each city are calculated using the average as a measure of central tendency given the nature of the survey, with results restricted to those that fall within three standard deviations of the mean. Current analysis is not framed with regard to specifc timeframes, asset classes or investment rationale on which the purchasing decision is based. Results are averaged across all respondents for regional and global averages, based on the number of responses for each city. Hotel investment cycle The hotel investment cycle is a proprietary graphic of Jones Lang LaSalle, used to provide a snapshot of the state of the hotel investment market. Each quadrant describes the state of the market as indicated by survey respondents with respect to current hotel real estate investment values. We note that this does not necessarily represent Jones Lang LaSalle s appraised or house view. For the markets in which they invest in or track, respondents were asked to select their perceived stage of the property cycle out of with the weight of opinion and regional averages calculated from that. The clock is a simple tool and should only be used in a broad impressionistic way. It is not intended to depict precise forecasts or property market cycles, and does not suggest that markets will move in a clockwise direction. The references to movement in hotel investment values are in local currency. Developer: Property developers who buy with the intent of redevelopment Institution: Direct investment by pension funds, banks and insurance companies Listed REIT: Listed Real Estate Investment Trust or Property Trust Private: High net worth individuals and private companies for whom investment in hotels is not their primary business activity and who do not operate hotels Private Equity or Investment Fund: Companies, including investment banks, which invest on behalf of other investors. Investments are opportunistic and require an active management strategy Owner Operator: Listed or unlisted companies that own and operate hotels or serviced apartments as their core business Glossary ADR = Average daily rate IRR = Internal rate of return RevPAR = Revenue per available room CAGR = Compound annual growth rate Major gateways include: Americas Chicago, Los Angeles, Miami, New York, San Francisco and Vancouver Singapore, Sydney and Tokyo EMEA Barcelona, London, Milan, Moscow, Munich, Paris and Rome

25 Atlanta tel: fax: Dallas tel: fax: Leeds tel: fax: Miami tel: fax: San Francisco tel: fax: Auckland tel: fax: Denver tel: fax: London tel: fax: Milan tel: fax São Paulo tel: fax: Bangkok tel: fax: Dubai tel: fax: Los Angeles tel: fax: Moscow tel: fax: Shanghai tel: fax: Barcelona tel: fax: Düsseldorf tel: fax: Lyon tel: fax: Munich tel: fax: Singapore tel: fax: Beijing tel: fax: Exeter tel: fax: Madrid tel: fax: New Delhi tel: fax: Sydney tel: fax: Brisbane tel: fax: Frankfurt tel: fax: Manchester tel: fax: New York tel: fax: Tokyo tel: fax: Buenos Aires tel: fax: Glasgow tel: fax: Marseille tel: fax: Paris tel: fax: Washington, D.C. tel: fax: Chengdu tel: fax: Istanbul tel: fax: Melbourne tel: fax: Perth tel: fax: Chicago tel: fax: Jakarta tel: fax: Mexico City tel: fax: Rome tel: fax:

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