Hoteles City Sustainability and Social Responsibility Report

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1 Hoteles City 2013 Sustainability and Social Responsibility Report

2 Hotel City express Reforma El Ángel Mexico City

3 Message for the Reader This is the first Sustainability and Social Responsibility Report issued by Hoteles City Express, S.A.B. de C.V. ( Hoteles City or the Company ), a document that evidences the focus of the Company with regard to its commitment with the environment and social responsibility. All of the information contained in this document was prepared internally by the Company, including all key performance metrics. The foregoing, with the exception of the indexes containing indications of different external sources. This Report has been prepared based on Guide 3.1 of the Global Reporting Initiative (GRI) standards. Nevertheless, this Report has not been certified by such entity and it has not been reviewed by external auditors that are experts in this area. This document is not an exhaustive report and it may possible not include all the information that the reader may need regarding the sustainability and social responsibility programs implemented by Hoteles City. The forward-looking statements contained herein are based on the current work plans and perspectives of the management of the Company. More Information If you need more information about the Company, please visit our website for Investor Relations

4 Table of Contents Message from the Chief Executive Officer Hoteles City at a Glance Sustainability & Social Responsibility Integral Platform Corporate Governance Environmental Commitment Shared Value Satisfied Guests Stronger Suppliers Our Team

Message from the Chief Executive Officer Dear Shareholders It is my pleasure to present the first Sustainability and Social Responsibility Report of Hoteles City.

5 Message from the Chief Executive Officer Dear Shareholders It is my pleasure to present the first Sustainability and Social Responsibility Report of Hoteles City. The preservation of the environment and the responsibility with the community are important aspects to bear in mind on the day-to-day operations of companies. We are not an exception. Therefore, since we designed and began operating our first hotel in 2003, we have been deeply committed with sustainability and social responsibility. We can now state that we have a chain with more than 80 hotels that consistently operate following standards of sustainability guaranteed by international organizations that are leaders in this area of expertise. For example, as of this date, we have 6 hotels that are certified under the LEED standard of the U.S. Green Building Council and we have five hotels that are certified under the EDGE standard of the World Bank. Furthermore, all of our hotels are in the process of being certified by UNESCO under the Biosphere Responsible Tourism program. Our commitment with the communities where our hotels are located at, is an issue that is very important for us. As an example, our chain generates more than 2,100 direct employments in 28 States of the Mexican Republic, Colombia, and Costa Rica. Furthermore, by means of our social programs such as City Balance and by means of our alliances with institutions such as the Instituto Nacional de Educación para Adultos (INEA), we encourage weight control, we help to fight obesity, and we help our collaborators finish their mid-level studies. Additionally, we have continued supporting programs designed for spreading culture and encouraging biodiversity in Mexico, as evidenced by our support to the National Art Museum (MUNAL) and our program for the preservation of the Mexican royal eagle. Finally, I would like to reiterate the commitment of all of the people that are part of the team of Hoteles City for continue working in order to maintain a profitable growth linked with a commitment with the preservation of the environment and the strengthening of our social responsibility standards. Ing. Luis Eduardo Barrios Sánchez Chief Executive Officer and Chairman of the Board Hoteles City Express S.A.B. de C.V. Hotel City express Hermosillo 5

6 Hotel City express City Suites Santa Fe Mexico City

Hoteles City at a Glance The Best Value Proposition of Hotel Services Hoteles City is the leading hotel chain in the limited service segment in Mexico.

7 Hoteles City at a Glance The Best Value Proposition of Hotel Services Hoteles City is the leading hotel chain in the limited service segment in Mexico. Hoteles City is focused on the travelling businessman and it has 85 hotels and 9,670 operating rooms 1 that are strategically located at the main business, service and trade centers of Mexico, including one hotel in Costa Rica and another hotel in Colombia. Founded in 2002, Hoteles City has become the hotel chain with the biggest growth in the country, its expansion and operations are based on a disciplined investment process and a high price / value proposition for our customers. We have a leading management team in the industry that has achieved a compound annual growth rate of 30% in the number of hotel rooms during the past ten years. We have opened, on average, one hotel every seven weeks since we opened our first hotel in Hoteles City operates as an integrated business platform that allows it to develop, acquire (selectively), manage and commercialize the hotels in the limited services segment, mainly in Mexico. By means of each one of its properties and the solid position of its brands, Hoteles City continues strengthening its competitive position by specializing in a highly fragmented and unattended market. With 83 hoteles in Mexico, one in Costa Rica, and one in Colombia 1, Hoteles City operates with three different brands: City express, City Suites, and City junior. Hoteles City completed its Initial Public Offering on June 2013 and it is listed in the Mexican Stock Exchange under ticker symbol HCITY. Hotel City express Playa del Carmen (1) As of April 30,

Hoteles City at a Glance +2,100 employees 85 hotels 1 presence in 3 countries +9,600 rooms Hoteles City in Numbers Integrated and Highly Efficient Business Platform Hoteles City is an integrated

8 Hoteles City at a Glance +2,100 employees 85 hotels 1 presence in 3 countries +9,600 rooms Hoteles City in Numbers Integrated and Highly Efficient Business Platform Hoteles City is an integrated business platform that covers the whole hospitality value chain and it has the best development and construction capacity in Latinamerica. Since the opening of its first hotel in Saltillo, Hoteles City has developed 83 hotels in Mexico and two hotels abroad under standards of quality, standardization, and preservation of the environment. Hoteles City has a geographic presence in 96% of the States of Mexico in terms of gross domestic product creation. Strategic Location of Hotels at the Main Business Centers and Corridors in Mexico. (1) As of April 30,

Joint-Venture Hotel City express and City Suites Santa Fe

9 Hoteles City at a Glance Hotel Portfolio by Brand Hotel Portfolio by Type of Property Owned Joint-Venture Hotel City express and City Suites Santa Fe Mexico City Leased Franchises and Management (1) As of April 30,

Hoteles City at a Glance With more than 9,600 rooms, Hoteles City is the third biggest hotel chain in Mexico As a result of its accelerated growth, Hoteles City has managed to position itself as the

10 Hoteles City at a Glance With more than 9,600 rooms, Hoteles City is the third biggest hotel chain in Mexico As a result of its accelerated growth, Hoteles City has managed to position itself as the third largest hotel chain in Mexico and as the largest in the limited services segment. Hoteles City has constructed and developed most of its hotels, which allows the hotel chain to guarantee the quality of its properties by means of complying with international safety and environmental preservation standards. Furthermore, the standardization of the hotels allows it to reach a higher operational efficiency in the daily management of the properties. Number of Hotels Through IHG 110 POSADAS 84 HCITY The Third Largest Hotel Chain in Mexico High Quality at a Fair Price Source: ISH Satisfaction Survey of Hoteles City Hotel City express Chetumal Satisfied 98% Of our customers are satisfied 2 Unsatisfied Hoteles City focuses on providing hotel services to the traveler that seeks to maximize the quality-price relation. Additionally, in a highly fragmented industry such as the hotel industry in Mexico, Hoteles City has been able to grow through the substitution of independent hotels with low quality rooms. The foregoing is achieved through the offering of value and quality at a similar or lower price. As evidenced by our last Guest Satisfaction Survey, 98% of our customers are highly satisfied with our services. Clients have shown their preference of staying at hotel belonging to a chain, such as Hoteles City, as a result of the standardization and strength of a brand that cannot be provided by independent hotels. 1. Source: public information of the companies. For Hoteles City, it includes 2 hotels that are part of the development plan for 2013 that were opened during the first weeks of

11 Hotel City express Reforma El Ángel Mexico City Hotel City express Havre Mexico City Hoteles City operates based on an integral sustainability and social responsibility platform

12 Hotel City express and City Suites Santa Fe Mexico City Corporate Governance Environmental Commitment Shared Value Clients Suppliers Employees Hotel City Suites Santa Fe Mexico City

Corporate Governance Corporate Governance The Board of Directors of Hoteles City is comprised of 9 members with broad experience in the hospitality industry.

As of this date, the Company has a diversified distribution of capital stock that includes private and institutional investors, both Mexican and foreign.

13 Corporate Governance Corporate Governance The Board of Directors of Hoteles City is comprised of 9 members with broad experience in the hospitality industry. Their knowledge of the industry has been and continues to be a key element of the success of the Company. The Board has 9 members, of which 8 classify as independent members. As of this date, the Company has a diversified distribution of capital stock that includes private and institutional investors, both Mexican and foreign. Morgan Stanley REF Fund 22% 13% 9% IFC World Bank 4% Wamex / Afores 43% 9% Hoteles City Employees Floati in the BMV Private Investors Distribution of Shareholders Equity of Hoteles City Hotel City junior Puebla Hotel City express Buenavista Mexico City 13

14 Corporate Governance Management Entities Oriented for Creating Value for the Shareholders Management of Hoteles City Luis Eduardo Barrios Sánchez Francisco Javier Arce Gándara Roberto Palacios

Chief Operating Officer Chief Marketing and Franchise Services Officer Chief IT and Systems Officer +100 years of experience in the hotel services industry (altogether) Hotel City express San José

14 14 Corporate Governance Management Entities Oriented for Creating Value for the Shareholders Management of Hoteles City Luis Eduardo Barrios Sánchez Francisco Javier Arce Gándara Roberto Palacios Prieto Rogelio Avendaño Martínez Blanca Aidee Herrera Colmenero Francisco José Fabregat Ramírez Chief Executive Officer and Chairman of the Board Chief Development Officer Chief Financial Officer Chief Operating Officer Chief Marketing and Franchise Services Officer Chief IT and Systems Officer +100 years of experience in the hotel services industry (altogether) Hotel City express San José Costa Rica Committees Auditing Corporate Practices Planning and Finance Nominations Construction and Development Compensations 95% Compliance with the Best Practices for Corporate Governance of the Mexican Stock Exchange in 2014 Hotel City express Morelia

shareholders and the company City Express El Ángel Mexico City Ing.

15 Hoteles City is a company that is managed by professionals reporting to our Board of Directors, that are committed with reaching goals by meeting results for the shareholders and the company City Express El Ángel Mexico City Ing. Luis Eduardo Barrios Sánchez, Chief Executive Officer and Chairman of the Board Hotel City express Mérida

16 Truly Green Hotels 16

Environmental Commitment Environmental Commitment The care and protection of the environment is a prevailing aspect in the development and operation of each one of our hotels.

17 Environmental Commitment Environmental Commitment The care and protection of the environment is a prevailing aspect in the development and operation of each one of our hotels. Therefore, all 85 properties that are operated by Hoteles City 1 follow strict sustainability standards that have allowed the Company to receive international certifications for many of the properties of the chain. Since its origins, each one of our hotels is developed and constructed incorporating efficient design procedures that allow to generate significant savings in the operation of the properties. Such is the case of energy-saving electric facilities, water dispensers with aerators, hot water perimetral circulation systems, among others. Hotel City junior Veracruz Airport 12% of the annual Capex corresponds to incremental investment resulting from the adoption of sustainable policies for our hotels Hotel City express Nogales (1) As of April 30,

18 6 Seconds Time that it takes for the hot water to run in our showers 2 Hours Time that it takes the biodegradable soaps that we use to dissolve in water 2 Buckets Volume of water that is used for completely cleaning a room Double glass All of our windows have double glass in order to maintain the temperature, save energy, and in order to reduce sound Hotel City Suites Toluca

Hotel City Suites Santa Fe Mexico City Liters per Occupied Room per Night 857 KwH per Occupied Room per Night 18.3 18.

19 Hotel City Suites Santa Fe Mexico City Liters per Occupied Room per Night 857 KwH per Occupied Room per Night Daily Average Consumption of Water per Room Daily Average Consumption of Energy per Room Grams per Occupied Room per Night Liters per Occupied Room per Night Daily Average Garbage Waste per Occupied Room Daily Average Consumption of LPG per Room

20 Hotel City express Durango Milions of Liters % less water and energy consumed on average Recycled and Treated Water Hotel City express Santa Fe Mexico City

21 Environmental Commitment Efforts Geared to Implementing

opening of our first hotel, one of the main priorities of

certifications such as those granted by the U.S.

21 21 Environmental Commitment Efforts Geared to Implementing the Best Practices in Environmental Matters Since the opening of our first hotel, one of the main priorities of Hoteles City has been to adopt the best practices in environmental matters. Therefore, all our projects meet safety and sustainability international standards. The foregoing has allowed Hoteles City to have certifications such as those granted by the U.S. Green Building Council, UNESCO, and the World Bank, among others. Hotel City junior Puebla Hotel City express Reynosa Hotel City express Santa Fe Mexico City

22 Environmental Commitment LEED Certification Granted by the U.S. Green Building Council The LEED Certification standards incorporate a series of energetic efficiency and environment protection provisions. Their main characteristics are to reduce carbon footprint and to save energy. This certification is granted only to those properties that have the highest standards of efficiency, care, and amicable operation with the environment. Only 5% of the rooms that exist in Mexico have LEED Certification 1 Hoteles City contributes to the protection of the environment by providing healthy, comfortable, and productive environment interiors, with an impeccable air quality. Furthermore, it also complies with established provisions, by means of purchasing organic food from local suppliers, maximizing the use of natural light, using recyclable materials, installing eco-friendly airconditioning systems, and constructing systems that allow a control of costs and that generate savings in energy and wastes. All of our hotels are built under the same quality standards, which allows us to continuously monitor the efficiency of each room of the hotel chain. (1) Source: list of hotels with certification 2013 IFC 22

Environmental Commitment EDGE Certification provided by International Finance Corporation The EDGE Certification granted by the International Finance Corporation (IFC) member of the World Bank is

The EDGE program is an innovative certification tool that offers an ideal set of technical solutions that reduce energy and water consumption, taking into consideration initial costs and possible

23 Environmental Commitment EDGE Certification provided by International Finance Corporation The EDGE Certification granted by the International Finance Corporation (IFC) member of the World Bank is only granted to properties that have the highest sustainability standards. The EDGE program is an innovative certification tool that offers an ideal set of technical solutions that reduce energy and water consumption, taking into consideration initial costs and possible operational savings. Therefore, it constitutes a powerful tool for fighting climate change. USD 144 million Average resources saved annually in energy and water expenses for having an EDGE certification 2 years Average recovery period of the incremental investment if the EDGE program is adopted Source: Introducing the EDGE by the World Bank 23

Environmental Commitment Biosphere Responsible Tourism Certification Granted by UNESCO The Biosphere Certification is

tourist activities that do not harm the environment and that favor society.

24 Environmental Commitment Biosphere Responsible Tourism Certification Granted by UNESCO The Biosphere Certification is granted by the Responsible Tourism Institute that is part of the United Nations Educational, Scientific and Cultural Organization (UNESCO). Biosphere sets forth the required criteria for sustainable conduct in the international tourism sector, and it promotes tourist activities that do not harm the environment and that favor society. The certification criteria is divided into five different aspects: Environment, Social Responsibility, Economic Aspect, Quality and Security Management, and Ethics and Integrity. It is estimated that 100% of our hotels will have a Biosphere certification by the end of

25 25 Certified Hotels Hotels certified by the end of each year Environmental Commitment In Process

26 Construction Site Hotel City express Cananea Use of Sustainable Construction Systems Hotel City express Tijuana

27 27 Which are the Differences with Other Hotel Chains? Environmental Commitment Architectural design that allows natural lighting for long periods during the day WC s and sinks that save water Use of selected waterproofers for a bigger reflection of the light Assets and equipment produced with recycled wood Water sprinklers for gardens that use water treated by the hotel, based on seasonality and temperatures Separation and recycling of waste Chain in Mexico with Quality and Environmental Policies Disposable plates and cups made from cornstarch Awareness of the customer for cleaning whites and using biodegradable detergents Installation of saving light bulbs and carpets made from recycled materials 27

28 Programs for the Protection of Biodiversity

29 Programs for the Protection of Biodiversity 29

30 Shared Value

Shared Value Generating Value Beyond Hoteles City Generating value for all stakeholders of Hoteles City is one of the priorities of the Company.

31 Shared Value Generating Value Beyond Hoteles City Generating value for all stakeholders of Hoteles City is one of the priorities of the Company. With the opening of each new hotel, an important number of people are benefitted from the economic and social development created by each one of our properties. This way, we achieve that each one of our 85 hotels becomes a trigger for the value of the region where they are located at. In this context, some actions include the development and support for the growth of local suppliers, donations, the adoption of streets, and improving the competitiveness of hotel tariffs in different regions, among others. Hotel City Suites Anzures Mexico City Hotel City junior Puebla Autopista 31

32 Shared Value Improving the Urban Image Street adopted in Insurgentes Sur Avenue located at Mexico City 80% of our hotels in Mexico City have adopted streets and have contributed to improving the urban image. 32

33 Hotel City express Insurgentes Sur Avenue - Mexico City Hotel City express Reforma El Ángel Mexico City Distributed Economic Value

34 Shared Value Business Entities that Generate Important Economic Value Number of partners 15 Hotels in Joint-Venture Enterprises Number of Partners in Joint-Venture Hotel Enterprises Number of Joint-Venture Hotel Enterprises Millions of Pesos billion 539 pesos invested yearly in hotel assets by the chain Generated Economic Value 1 (1) Considers covered amounts for costs and expenses related to hotel operations, management and sales expenses, expenses for opening new hotels, and other non-recurring expenses. (2) Considers the acquisition of real estate property, equipment and improvements made to leased property. 34

35 35 Shared Value Industry Growth Triggered by Hoteles City Growth by Number of Rooms in Mexico. 2003=100 1 CAGR Hoteles City 1 CAGR Industry +36% annual +3% annual Growth of the Industry Compared to Hoteles City (1) CAGR: Compound Annual Growth Rate, Source: Internal estimates based on information provided by the Ministry of Tourism New Rooms Hoteles City / New Rooms Industry 15% 11% % Source: Internal estimates based of information provided by the Ministry of Tourism Contribution by Hoteles City to the Growth of the Industry +10x +10 times above the industry s growth has been the growth of Hoteles City during the last 10 years

36 36 Shared Value Hotel City express Insurgentes Sur Mexico City With a market share of 3.5% in a highly fragmented market, Hoteles City has contributed to 15% of the industry s growth Hotel City express Querétaro Jurica

37 Satisfied Hotel City express Hermosillo Guests

38 Satisfied Guests 98% of Our Guests Prefer Our Services Over the Services of Independent Hotels Thousands of Customers 811

38 38 Satisfied Guests 98% of Our Guests Prefer Our Services Over the Services of Independent Hotels Thousands of Customers Number of Customers Thousands of Occupied Room Nights 1,675 1,531 1, Occupied Room Nights

Satisfied Guests % of Satisfied Customers 98% 97%

Internet available for all of our rooms, common

Customers per Year 790 826 633 Digital Platform that

booking central for our clients 2011 2012 2013

staying at a hotel from the Hoteles City chain,

39 Satisfied Guests % of Satisfied Customers 98% 97% 98% Guests Satisfaction 2013 Wireless Internet available for all of our rooms, common areas, and parking lots at our hotels Thousands of Customers per Year Digital Platform that is highly efficient and operates as a portable booking central for our clients Guests of Hoteles City 1 (1) Customers that, after staying at a hotel from the Hoteles City chain, prefer to stay at a hotel from our brand instead of staying at an independent hotel. 39

40 Stronger Suppliers that Grow Together with Hoteles City

Hotel City express Reforma El Ángel Mexico City Number of Suppliers that Participated in Biddings During the Past Three Years Accumulated 2011-2013 114 Relations with Suppliers for the Construction

41 Hotel City express Reforma El Ángel Mexico City Number of Suppliers that Participated in Biddings During the Past Three Years Accumulated Relations with Suppliers for the Construction and Equipment of Hotels Average Number of Participants by Bid for Construction and Equipment Accumulated % Transparent Bidding Processes For the construction of our hotels, we conduct open and transparent bidding procedures that encourage the participation of new competitors Average Number of Participants in Bids for Each Hotel 41

42 Stronger Suppliers Sustainable Puchases Policy All of our suppliers must observe our sustainable acquisitions policy City Express Veracruz 42

43 Our Team

Our Team City Express El Ángel Ciudad de México Number of Employees 1,541 1,808 2,121 2011 2012 2013 +39,000 hours of

44 Our Team City Express El Ángel Ciudad de México Number of Employees 1,541 1,808 2, ,000 hours of training in 2013 Growth in the Number of Employees Hours of Training 39,732 10,709 18, Training for Employees 44

45 45 Our Team Gender Equality and Protection of Labor Rights 65% of the employees of Hoteles City are women Women Men 1, , , Gender Equality City Junior Puebla

46 46 Our Team Highly Motivated Employees Number of Absences / Number of Labor Days Layoffs and Resignations / Number of Employees 0.6% 0.6% 0.6% 7.7% 8.3% 7.8% Absenteeism Index Rotation Index

47 Our Team Training in Environmental Matters and Health Care Thousands of Pesos 184 +8,100 Hours of training

47 47 Our Team Training in Environmental Matters and Health Care Thousands of Pesos ,100 Hours of training in environmental matters Investment in Sustainability and Health Care Programs and Courses

48 Hotel City express Saltillo

49 Hoteles City Sustainability and Social Responsibility Report 2013 If you need more information, please visit our website

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