GRI 2014 ITALIA. INTERVIEWS ABOUT THE ITALIAN HOTELS & RESORTS MARKET MILAN NOVEMBER

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1 ITALIA GRI 2014 MILAN NOVEMBER INTERVIEWS ABOUT THE ITALIAN HOTELS & RESORTS MARKET In preparation for the inaugural Italia GRI, we conducted interviews with some of our most prominent members in the Hotels & Resorts industry. Eager to find out what the next 12 months have in store for this industry in Italy, we discussed the current market situation, what difficulties the industry faces and where are the best opportunities. Enjoy the interviews and join us in Milan at Italia GRI 2014!

2 2 FRANCESCO CEFALU Director of Development, Europe FOUR SEASONS HOTELS AND RESORTS In the luxury segment of tourism, Italy is and will remain a unique destination. The variety of strong destinations, the uniqueness of the experiences provided and, in same, the timeless beauty of some of the top hotel assets are characteristics of this market that can t be replicated. In this specific moment when we have a continuously growing High Net Worth Individuals (HNWI) population, in particular from new source markets, from South America to South East, Italy has a unique chance to create a long-term relationship with these visitors. We need however to cultivate this opportunity, not like we have done in the past. Since the business market mostly follows the GDP growth and has therefore been in difficulty for many years in most markets, I d like to focus on leisure and perhaps high-end MICE. I believe Puglia and Sicily have the right mix of authentic experiences and natural beauty to become the next luxury destinations in Italy, provided that they are able to create a quality offering of hotels, restaurants and cultural experiences that make them enticing for the discerning global traveller. On more traditional destinations, I believe that Venice can even improve its position on the global market in the future. 4. What kind of investors are currently interested in the Italian Hotel & Resorts market? What are they looking for? The quantity of capital from all sources that is interested in investing in hotel opportunities, more acquisition than new builds of course, is very significant, particularly in major markets like recent transactions in Florence and Rome show. It is more difficult to find the right opportunities at reasonable prices. In the economy and upscale segments, Italy needs to bring a consistency of product and service that it doesn t have right now. This doesn t necessarily mean give up all our hotels to international brands, but internationalize our industry for the benefit of guests and, why not, potential investors. For example, it s acceptance of the global dominance of management agreement vs leases and therefore improve financing conditions for these type of arrangements. In the segment where we operate in Four Seasons (world-class luxury), I feel the main obstacle has been the complexity of the legal framework, and sometimes the banks restrain, in dealing with problematic financial situations which leaves assets in a limbo for a long time. This is, for example, completely different in Spain which has driven a much more energetic transaction market for the benefit of the whole industry. 5. What kind of partners/opportunities are you looking for? Being an operator, we are looking at opportunities to manage hotel assets, mostly existing, in selective premier destinations around the country. Venice is a key market for us but we are also interested in resort destinations like the Lakes, Tuscany countryside, Amalfi Coast, Puglia and the islands. Of course it has to be the right product and the right market, we want to build on our strong leadership position in the markets of Milan and Florence.

3 3 ALAN MANTIN Snr Development Director, Southern Europe & North Africa HILTON HOTELS The Italian hotel industry is dominated by independently owned, family run hotels. The presence of internationally-branded hotels is limited, with non-branded properties accounting for a large part of hotel supply. Given the limited domestic market and the consequent need to attract international travellers, a growing share of independent hoteliers are exploring the opportunity to convert their properties into branded ones. Whilst the wider economy remains challenging, demand for good quality hotel accommodation is improving and we believe that if this growth continues we will see even more opportunity to increase our mid-market and economy brands presence in Italy. Whilst investors recognize Italy s potential, the access to market can be very limited to outsiders, and the legal and political procedures and building permits at a local, regional and national level can be prohibitively complicated. High taxes and labour costs have also proven challenging over the past few years, particularly affecting the economy and mid-market hotels, which we see as providing the greatest opportunity for growth. We are particularly focused on opportunities for our focus service brands we currently have 11 hotels trading under our Hilton Garden Inn and Hampton by Hilton brands in the Italian market - in addition to the further growth of our full service brands. City locations such as Rome, Milan, Turin, Genoa, Verona, Bologna, and Naples are of interest and we are also exploring opportunities in resort areas such as Sicily and Sardinia. We are also seeing huge opportunity for our focused service brand, Hampton by Hilton which offers Hilton Worldwide s high standard of hospitality at a mid-market price point. We plan to open hotels under this brand in Bari, Milan and Rome in What kind of partners/opportunities are you looking for? There is considerable corporate and leisure demand for our portfolio of brands within the Italian market. We are seeking key partners to work with to develop our brands with a view to using a combination of both management and franchise agreements as vehicles for growth.

4 4 JON SCHAUDER Director Business Development, Europe, Middle East & Africa TROON GOLF From a developer perspective, the lack of fresh supply offers many windows for more opportunistic capital to get in at a low in the economic cycle. From an operator standpoint, the years of reduced capital investment have left many assets behind the curve of what travellers expect in their destinations. From either viewpoint the Italian market holds possibilities to take advantage of the current situation and get in place for the future. Italy is a bucket list destination for many around the world and tourism/hospitality should be viewed as a segment which could help the economy even more than it already does. The bureaucratic hurdles for developers and investors need to be reduced so capital can flow in and grow the necessary infrastructure in a timely fashion whether it be new builds or refurbs of existing assets. Greater transparency and less red tape would go a long way. We at Troon tend to focus on international traffic in addition to national footfall in the golf resort sector meaning that transit hubs and their surrounding regions (such as Veneto, Milano and Firenze) always have appeal for us. And being sizable hubs there are opportunities in existing inventory for refurb or advanced management alongside development potential. 4. What kind of partners/opportunities are you looking for? As a developer/operator with experience in Italy we are looking for development/ opportunistic capital that wants to position itself in one of the hubs of European tourism Italy and carve out the next hospitality product that is fresh, marketable and can take advantage of the lack of true golf resorts in Italy.

5 5 Dieter Kornek. The Italian Hotel & Resort market is very interesting as there is still a lack of branded hotels and hotel chains with international background and experience. Moreover, the market is of course a little bit volatile (also due to bad weather), but in the long run the potential of Italian leisure and business market is nevertheless above average. Harry Charles Mills Scio. The lack of international brands presence makes Italy a strategic country. Since it is mid to upper market Italy is if not a top place close to on list of destinations for leisure travel. Dieter Kornek. Rome, Verona, Firenze and Bologna, Tuscany, Dolomites, Lago di Garda, Sicilia. Harry Charles Mills Scio. Tuscany, Rome, Florence, Venice, Milan, Puglia. DIETER KORNEK MD Development FMTG FALKENSTEINER TOURISM GROUP HARRY CHARLES MILLS SCIO Board member IL PELLICANO SPA 4. What kind of investors are currently interested in the Italian Hotel & Resorts market? What are they looking for? Dieter Kornek. Private investors, family offices, some institutional investors. Looking for lease or rental contracts, attractive locations, management contracts with well performing hotel operators. Harry Charles Mills Scio. Gateway cities, trophy assets not interested in Resorts or where seasonality is present. Dieter Kornek. Functioning market economy, less bureaucracy, realistic price and yield expectations, private equity, credit financing, venture capital. Harry Charles Mills Scio. A ministerial budget, remove fragmentation of marketing spent from Regions. Reinforce all infrastructure at points of entry and exit of country along with improved internal infrastructure. Promote Italy better internationally. 5. What kind of partners/opportunities are you looking for? Dieter Kornek. Leisure and Business hotels in targeted areas; Investors who are interested in long term lease or management contracts; buying in selected cities. Harry Charles Mills Scio. Sophisticated investors with industry experience, operators to franchise or brands. Banks willing to lend.