BUY HOLD The Manchester Hotel Market and the UK Hotel Investment Market LEASE REFINANCE SELL DEVELOP Graham Dodd Ian Thompson MANAGEMENT CONTRACT 10 April 2008
Agenda About Jones Lang LaSalle Hotels Hotel Development UK Operating Market UK Investment Market Manchester Overview Liverpool Overview Leeds Overview 2
Who are we? EMEA Americas Asia/Pacific Investment Sales & Acquisitions Asset Management Valuation & Advisory Corporate Finance Development 3
The Importance of the UK within Europe m 20000 18000 16000 14000 12000 10000 8000 6000 4000 2000 0 Hotel Investment Volume Total European Volume UK Volume 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 4
UK Transactions by Deal Structure - 2000 vs 2006/7 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% VP Inv estment MC S & L P2P Corp Franchise - Owner / operator sales vastly reduced - Management contract proliferation - Sale and leaseback trend 2000 2006 2007 5
Changing Buyer Profile 80% 70% 60% 50% 40% 30% 20% 10% 0% Public Hotel Operator Private Hotel Operator UK Transactions - Proportion of Buyers Private Equity HNWI 2000 2006 2007 Property InstitutionalDeveloper REIT Public Company Investor Company 2000 - Dominance of public and private operators - Private Equity virtually non existent 2006 - Move from public to private - Growing influence of private equity - Emergence of PropCos and HNWI 2007 - Accelerated interest from PropCos and institutions, willingness to accept operational risk 6
What is the impact of the credit crunch on development? Business as usual? - Strong operator demand - Positive long term view of trading, investment and funding What lenders are looking for in hotel developments - Appointment of hotel operator - Prefer city centre - Clear strategy and process, detailed business plan including costing and timeline - Description and track record of parties involved building company, architects, asset managers, operator - Ability to be re-let to alternative hotel operators 7
Which Brands will Win? Tie in with aggressive equity / development partner - Shiva (Hilton), WG Mitchell (Rezidor), Land Securities (Accor) Recognisable name in the UK - Hilton, Marriott, IHG, Starwood Consistency v flexibility of product - New builds v conversions Brand differentiation - From other brands and within their own brand stable Efficient construction / space requirement Flexibility in structures - management / lease / site purchase - Premier Inn, Accor Offer leases - Travelodge, Accor, Premier Inn, Golden Tulip, Jury s Inn 8
Which Brands will Win? New Brands Entering the UK 9
What is the impact of the credit crunch on the operating market? As of now, not much! Upscale / mid market / limited service Cyclicality versus counter cyclicality Lease versus management contract Increasing operating costs Decreasing consumer spending / business confidence 10
What is the impact of the credit crunch on the investment market? 2007 A year of two halves H2 2007 vs H1 2008 Yields moving out but how far? Valuation dilemma 11
Where Are We Now? Slowdown in volume of transactions Some investor groups may withdraw but others may return Risk may be more properly analysed and priced in - Greater due diligence - More sensible projections - Greater emphasis on using sector-experienced professional teams - Banks committed to sector for the long term - Deal thresholds versus Closure certainty 12
Where Are We Going? Are investors now shying away from hotels as too risky have we lost the new classes of investors? Will the trend towards accepting operational risk be reversed? Leases versus management contracts? Will we see discomfort or distress in the market? Price plateau or price correction? 13
Manchester Hotel Market General Overview Third Most visited city after London and Edinburgh Improvement in facilities and infrastructure Strong Conference and Events industry G-Mex, MICC, Bridgewater Hall and the MEN Arena Major events scheduled for 2008 Strong leisure market Cultural attractions, International Sports Facilities International Airport - 22 Million passengers 2007-42 Million passengers forecast 2015 Growth in International arrivals 14
Manchester Hotel Market Existing and Future Hotel Supply Approximately 66 graded hotels or 8,137 bedrooms Dominated by Four Star hotels only two Five Star 2004 Arora International, Radisson Edwardian, 2005 Mostly budget hotels Travelodge (Great Ancoats St), Quality Hotel, Travelodge (Airport), significant number of budget hotels in Greater Manchester 2006/07 Hilton Deansgate, City Inn, Macdonald Hotel 2008 and beyond 1,430 bedrooms either under construction or proposed including Etap and Ramada (Salford Quays), Crowne Plaza(Shudehill), Tulip Inn (Whitworth Street) and Park Inn (Cheetham Hill) 15
Manchester Hotel Market Operating Market Average Room Rate 2007 74.7-2008(F) 77.0 +3.10% Occupancy 2007 74.4% - 2008(F) 74.5% +0.2% RevPAR 2007 55.6 2008(F) 57.40 +3.2% As quality hotels continue to enter market = Positive ARR growth New supply = stagnant occupancy 16
Manchester Hotel Market Investment Market Significant development activity in last few years Few single asset transactions Alias Hotel Rosetti sold to ABODE price in excess of 10m The Lowry was marketed during 2006 but never transacted Going back to 2004 the Midland was sold to QHotels for around 35m and the Radisson SAS at Manchester airport transacted at around 50m 17
Manchester Hotel Market Conclusion 2008 is set to be a very active event year However supply is expected to grow by around 8% Overall we would concur with circa 3% RevPAR growth for 2008 New hotel supply will lead to a polarization within the city older hotels will be forced to contemplate refurbishments or risk losing market share Branding and location will be very important in terms of ensuring continued success 18
Liverpool Hotel Market General Overview European City of Culture 2008 Significant inward investment over last few years Since 2002 Liverpool has seen an additional 600 bedrooms Occupancy has largely been stable at around 73% ARR increase from 53 to 63 Strong weekend market softer during week Marked improvement of quality Malmaison, Hard Days Night Hotel and other boutique hotels 900 further rooms over next 2 years Jurys Inn, Hilton and Staybridge Suites 2008 set to be a good year beyond this will be dependent on how Liverpool continues to market itself to the global market 19
Leeds Hotel Market General Overview A significant commercial hub strong retail centre well established legal and financial sector 1,500 new hotel rooms since 2002 New supply from 2008 onwards City Inn (333 beds), De Vere Village (109 beds), Hampton by Hilton (120 beds), Hilton (200 beds), Roomzzz (38 beds) plus other mixed use sites Next few years will be challenging with a 20% increase in supply forecast Conference and events market not as strong but could improve following new mixed use schemes in the city 20
Performance Overview Full Service Market - Key Performance YoY % CITY_MARKET Occupancy Average Rate RevPar Occupancy % pts Average Rate RevPar Year 2006 Leeds 71.0% 65.01 46.15 Liverpool 77.0% 72.02 55.48 Manchester 78.9% 75.90 59.89 Year 2007 Leeds 72.1% 66.64 48.01 1.1% 2.5% 4.0% Liverpool 73.3% 75.39 55.28-3.7% 4.7% -0.3% Manchester 75.9% 79.61 60.40-3.0% 4.9% 0.8% Leeds Ytd Feb 07 66.7% 66.73 44.52 Liverpool 70.7% 72.26 51.12 Manchester 72.6% 79.21 57.49 Ytd Feb 08 Leeds 70.2% 67.74 47.57 3.5% 1.5% 6.8% Liverpool 69.9% 76.35 53.34-0.9% 5.7% 4.4% Manchester 67.9% 80.14 54.45-4.6% 1.2% -5.3% Source: TRI Hospitality Consulting 21
Performance Overview Lodge Market - Key Performance YoY % CITY_MARKET Occupancy Average Rate RevPar Occupancy % pts Average Rate RevPar Year 2006 Leeds 69.1% 44.34 30.65 Liverpool 80.7% 43.37 34.99 Manchester 75.2% 45.25 34.03 Year 2007 Leeds 68.9% 41.68 28.72-0.2% -6.0% -6.3% Liverpool 79.7% 45.59 36.35-0.9% 5.1% 3.9% Manchester 76.2% 46.37 35.34 1.0% 2.5% 3.8% Note : Lodge sample adjusted to ensure no one operator represents more than 40% of hotel supply Source: TRI Hospitality Consulting 22
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