Hotels & Hospitality. Knowledge, strategy results. Hotel Intelligence UK. October 2013

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1 Hotels & Hospitality Hotel Intelligence UK October 2013 Optimistic GDP growth in the UK is having a positive effect on hotel revenues, with trading holding up exceptionally well and RevPAR growth in a large number of cities across the country. We predict a rise in investor interest, particularly in the regions moving forwards into Knowledge, strategy results

2 Arrivals (000s) Bed Nights (000s) 1 Hotel Intelligence: UK Market snapshot The UK has a well-developed tourism industry, particularly around key cities such as London, Edinburgh, Birmingham and Manchester which all provide a wealth of leisure attractions and business incentives that attract a large number of tourists every year. The 2012 Olympics did not bring the surge in visitor numbers that was expected, with trading levels remaining largely subdued in the UK throughout has been increasingly optimistic, with RevPAR across the UK up 2.5% year-on-year September 2013 YTD. The UK hotel investment market remains the most liquid in Europe, with total investment volumes reaching 2.4 billion at September 2013 YTD. Optimistic GDP growth for the remainder of the year will have a positive effect on hotel revenues and we can expect trading in the UK to further improve in 2014 onwards. Economy Tourism UK: Tourism demand 180, , , , ,000 80,000 60,000 40,000 20, Visits Bed Nights Source: Visit Britain, Jones Lang LaSalle Hotels & Hospitality 700, , , , , , , , , ,000 The UK economy is the sixth-largest in the world measured by nominal GDP and is also one of the easiest countries in the world to do business. Despite a prolonged period of strong, low inflationary growth between 1993 and 2007, the UK economy has suffered considerably during the global economic recession, further dampened by an extended period of substantial fiscal tightening including spending cuts and tax hikes. According to IHS Global, however, the UK economy is now well on its way to recovery with GDP projected to grow 1.5% in 2013, revised up from a 1.3% increase projected earlier in the year. Further growth of 2.4% is expected for Financial services are the primary contributor to the UK economy, along with the pharmaceutical, construction and manufacturing industries (particularly aeronautics). In addition, some of the world s largest companies have their headquarters in the country, including HSBC group, Royal Dutch Shell and GlaxoSmithKline. Tourism contributes over 115 billion to the UK economy and is one of the country s largest employers, representing 7.7% of total employment, or 2.3 million jobs. According to the UNWTO, the UK ranked sixth in terms of international tourist arrivals in 2012, after Germany and Turkey. London is by far the most visited destination in the UK, with over half of all tourist arrivals visiting the city. Other key tourism hotspots include Edinburgh, Manchester, Birmingham and Liverpool visitation levels are looking positive, with visits up 4% at July YTD when compared to the same period last year. In addition, the first seven months of 2013 have seen tourists spend a record billion, 13% higher than the same period in 2012.

3 Room pipeline 2 Hotel Intelligence: UK Visit Britain forecasts that by the end of the year, the total volume of visits will have increased 3% and the value of visits 4.5%. Visit Britain forecasts a strong growth in international tourist arrivals in 2014, particularly from Asia and emerging European source markets such as Russia, Poland and the Baltic states. International tourism Hotel supply UK: Top international feeder markets 11% 11% 14% 9% 16% 21% 18% Source: Visit Britain, Jones Lang LaSalle Hotels & Hospitality France Germany USA Ireland Spain Netherlands Italy Tourism in the UK remains dominated by domestic demand, comprising 63% of all bed nights in However, the importance of international demand cannot be underestimated as it constitutes a far higher proportion of tourism expenditure. The average international visitor spends 600 per visit compared to just 190 for domestic tourists. London accounts for 54% of all inbound tourism spend, 33% for regional England, 8% for Scotland and 2% for Wales. The UK s most important foreign source markets are France (making up 22% of international arrivals in 2012), Germany (18%), the USA (9%) and Ireland (8%). The USA is the biggest spender (13% of total spend), followed by France (8%), Germany (7%) and Australia (5%). Regional UK: Room supply vs. room pipeline* 2,000 1,800 1,600 1,400 1,200 1, Belfast York Newcastle Cardiff Glasgow Leeds Aberdeen Birmingham Liverpool 2,000 7,000 12,000 Room supply *Bubble size represents room pipeline as a percentage of existing supply Source: AMPM Hotels, Jones Lang LaSalle Hotels & Hospitality Manchester Edinburgh The UK has seen a 2.2% average increase in graded room supply between 2005 and 2013, with the sharpest rise between 2012 and 2013 (3.1%), coinciding with the London Olympics. At September 2013 YTD, the UK has around 560,000 hotel rooms, with another 23,000 due to open by % of regional hotels are located in the 3-star segment, with Budget and 4-star hotels comprising 27.3% and 28.0% of total supply, respectively. This contrasts with London, where over half of all hotels are in the 4-star or 5-star segment (40.3% and 12.5%, respectively). Newcastle has the largest number of rooms due to open in the next three years (a 15.8% increase on current supply), followed by Glasgow (14.1%), Birmingham (12.9%) and Manchester (10.1%). The source markets that have seen the highest spending growth in recent years are Japan (17%), Switzerland (14%), China (14%), the UAE (13%) and Brazil (11%).

4 Billions ( ) Hotel Intelligence: UK 3 Hotel ownership Investor activity UK: Hotel ownership by investor type 8.6% 6.3% 20.6% 3.3% 1.2% 0.8% Hotel Operator 3.4% Investment Fund/Private equity 55.9% Source: Jones Lang LaSalle Hotels & Hospitality Corporates Developer/Property Company HNWI Bank/Institutional Investor REIT Receiver Hotel operators own the largest share of hotel bed stock (55.9%), with Premier Inn being the most dominant hotel operator in the country. The majority of hotels, however, are still run by independent owners and are unbranded. The UK hotel market is dominated by domestic hotel owners, representing 88.6% of total room supply in the market. The second largest group are from Europe (3.3%), followed by the Americas (3.1%), Asia (1.2%) and Australasia (0.9%). Foreign investment is increasing, particularly from Middle Eastern and Asian investors looking for secure assets in major UK cities such as London and Manchester. Due to London s status as a safe haven for investment, hotel ownership in the capital is far more diversified, with around half of hotel bed stock owned by foreign investors, with a larger proportion of investment coming from private equity firms, HNWI s and property developers. UK: Hotel investment volumes Sept 2013 Single Asset Portfolio YTD Source: Jones Lang LaSalle Hotels & Hospitality Despite the severe economic challenges faced during the global financial crisis, the UK remains the most liquid investment market in Europe, with strong interest from investors for key assets in primary locations. In 2012, investment volumes in the UK hotel market reached 1.8 billion, reflecting a 34% decrease compared to Transaction volumes in 2013, however, have already reached over 2.4 billion, surpassing 2012 levels. It is expected that hotel property sales in 2013 will overtake those in Investment activity in 2013 has been primarily driven by portfolio sales, comprising approximately 60% of total transaction volume. Notable transactions at September YTD include the sale of 42 Marriott properties for 620 million, along with the acquisition of UK provincial hotel group, Principal Hayley, by Starwood Capital for an estimated 400 million. Excluding portfolio sales, London has been by far the most liquid market in the UK, with 29% of all transactions taking place in the capital. The largest single asset deal for the year so far was the sale of the InterContinental Hotel Park Lane, acquired by a private Middle Eastern investor for million.

5 4 Hotel Intelligence: UK Trading performance UK: RevPAR performance September YTD 2013 Aberdeen Edinburgh Cheltenham Leeds Manchester Bristol Glasgow Birmingham Regional UK Cardiff Gatwick Airport Heathrow Airport Newcastle London -0.1% ( 40.81) -1.7% ( ) 0.2% ( 54.44) 4.9% ( 36.66) 4.5% ( 43.87) 3.0% ( 40.36) 2.8% ( 40.20) 8.9% ( 40.95) 8.4% ( 54.53) 7.2% ( 47.62) 7.0% ( 47.78) 12.9% ( 48.41) Source: STR Global, Jones Lang LaSalle Hotels & Hospitality 20.10% ( 70.97) 17.7% ( ) -10.0% -5.0% 0.0% 5.0% 10.0% 15.0% 20.0% 25.0% Hotel trading performance varies dramatically across the UK, with cities such as London, Bath and Aberdeen generally seeing more stable results throughout the year due to their year-round popularity with business and leisure tourists A number of cities in regional UK have seen a notable increase in RevPAR September YTD 2013, with top performers being Aberdeen (20.1%), Edinburgh (17.7%) and Cheltenham (12.9%) Whilst trading in London is down 1.7% September YTD, the capital continues to post the highest RevPAR in the country at London trading is holding up exceptionally well despite the absence of the Olympics, which helped boost trading last summer to levels not seen in the city for decades. Hotel market outlook As the economy further improves throughout the remainder of 2013, we can expect the majority of UK cities to post encouraging trading results, particularly in London, Edinburgh, Manchester and Birmingham. The number of visitors coming to the UK is forecast to rise 3% by the end of the year. Notably, a large increase in the number of tourists visiting Scotland is expected in 2014 due to the Commonwealth Games taking place in Glasgow between July and August. Large hotel pipelines (relative to existing supply) in Newcastle, Glasgow, Birmingham and Manchester will help fill existing gaps in the market, although this new supply is expected to supress room rates achievable by hoteliers. Single Asset transactions currently remain dominated by foreign investors, with around 72% of investment funds coming from overseas. We assume international investment will further increase in the short term, particularly from Asia and the Middle East. We predict continued investor interest in the regions and an increase in single asset transactions moving forward into 2014.

6 Hotel Intelligence: UK 5 Appendix 1: UK transactions September 2013 YTD UK hotel transactions (as at September 2013) Hotel Location Price ( million) Room count Grade Price / Room ( ) Source of investment Portfolio Transactions UK Marriott Portfolio Multiple 620 7,833 4-Star 79,152 Middle East Principal Hayley Hotel Portfolio (Starwood) Multiple 350 3,397 4 Star 103,032 Americas Malmaison & Hotel Du Vin Portfolio Multiple 200 1,904 4 Star 105,042 Americas Caesar and Banke Hotel Portfolio* Multiple Star 557,312 Europe Staybridge Suites & Holiday Inn Stratford Multiple Star 182,857 Asia Ramada Encore Portfolio Multiple Star 44,484 Europe Harbour Hotels Portfolio Multiple Multiple 87,572 Europe Single Asset Transactions InterContinental London Park Lane London Star 674,497 Middle East Novotel Paddington London Star 310,699 Domestic Travelodge Kings Cross London Star 132,598 Domestic Metropolitan Hotel London London Confidential Star 450,450 Domestic Premier Inn Goodmans Field London Star 155,526 Domestic Parkes Hotel London London Star 1,060,606 Europe Hilton London Wembley (50% stake) London Star 334,444 Domestic Travelodge London Farringdon London Limited 114,155 Americas Hilton London Heathrow Airport Terminal 5 London Star 60,286 Domestic Apex City of London London Star 104,469 Domestic *Price reflects sale of Caesar hotel only

7 6 Hotel Intelligence: UK Hotel De Vere Grand Harbour Hotel Southampton Location Price ( million) Room count Grade Price / Room ( ) Source of investment Southampton Star 104,651 Domestic Premier Inn Cardiff City Centre Cardiff Limited 84,000 Domestic Fawsley Hall Hotel Daventry Star 258,621 Domestic Marriott Manchester Victoria & Albert Hotel Manchester Confidential Star 91,216 Domestic Radisson Blu Hotel Leeds Leeds Star 78,231 Domestic Travelodge Bath Waterside Bath Limited 89,600 Domestic Apex Waterloo Place Hotel Edinburgh Star 53,476 Americas Premier Inn Winchester Winchester Limited 91,089 Domestic Premier Inn Dalston Lane London Star 100,000 Domestic Travelodge Greenwich London Star 95,556 Americas Hilton Garden Inn Luton North Luton Star 54,140 Americas Travelodge London Woolwich London Limited 66,667 Unknown Mercure Brigstow Hotel Bristol Star 62,069 Europe Travelodge Edinburgh West End Edinburgh Star 36,313 Domestic Tune Hotel Newcastle Newcastle Upon Tyne Star 62,500 Domestic Paragon Hotel Birmingham Birmingham Star 20,000 Middle East Hunstrete House Hotel Bristol Bristol Star 200,000 Domestic Express By Holiday Inn Leeds Armouries Leeds Star 38,462 Domestic Etrop Grange Hotel Manchester Manchester Star 78,125 Domestic Crown Inn Amersham Star 128,571 Domestic Source: Jones Lang LaSalle Hotels & Hospitality

8 Hotel Intelligence: UK 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 budget hotels; timeshare and fractional ownership properties; convention centers; mixed-use developments and other hospitality properties. The firm s more than 265 dedicated hotel and hospitality experts partner with investors and owner/operators around the globe to support and shape investment strategies that deliver maximum value throughout the entire lifecycle of an asset. In the last five years, the team completed more transactions than any other hotels and hospitality real estate advisor in the world totaling nearly US$25 billion, while also completing approximately 4,000 advisory and valuation assignments. The group s hotels and hospitality specialists pro-vide 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: This report is confidential to the recipient of the report. No reference to the report or any part of it may be published in any document, statement or circular or in any communication with third parties without the prior written consent of Jones Lang LaSalle Hotels & Hospitality, including specifically in relation to the form and context in which it will appear. We stress that forecasting is a problematical exercise which at best should be regarded as an indicative assessment of possibilities rather than absolute certainties. The process of making forward projections involves assumptions in respect of a considerable number of variables which are acutely sensitive to changing conditions, variations in any one of which may significantly affect the outcome and we draw your attention to this factor. Jones Lang LaSalle Hotels & Hospitality makes no representation, warranty, assurance or guarantee with respect to any material with which this report may be issued and this report should not be taken as an endorsement of or recommendation on any participation by any intending investor or any other party in any transaction whatsoever. This report has been produced solely as a general guide and does not constitute advice. Users should not rely on this report and must make their own enquiries to verify and satisfy themselves of all aspects of information set out in the report. We have used and relied upon information from sources generally regarded as authoritative and reputable, but the information obtained from these sources may not have been independently verified by Jones Lang LaSalle Hotels & Hospitality. Whilst the material contained in the report has been prepared in good faith and with due care, no representation or warranty is made in relation to the accuracy, currency, completeness, suitability or otherwise of the whole or any part of the report. Jones Lang LaSalle Hotels & Hospitality, its officers, employees, subcontractors and agents shall not be liable (to the extent permitted by law) to any person for any loss, liability, damage or expense ( liability ) arising directly or indirectly from or connected in any way with any use of or reliance on this report. If any liability is established, notwithstanding this exclusion, it shall not exceed $1,000.

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