The Hotel Property Handbook Investment & Financing Keys Andalusia Snapshot

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1 The Hotel Property Handbook Investment & Financing Keys December 2017 Financial Advisory I Real Estate Deloite Financial Advisory 1

2 Javier García-Mateo, MRICS Partner Financial Advisory Real Estate Mob: Jose María Espejo Senior Manager Financial Advisory Real Estate Phone: Fernando Baldellou Partner Head of Financial Advisory Hospitality Phone: Leopoldo Parias The Hotel Property Handbook Partner Financial Advisory Mob: Jordi Schoenenberger Partner Hospitality Industry Leader Phone: Deloite Financial Advisory 2

3 The Hotel Property Handbook 1 Market Overview Andalusia growth Key drivers 2016 vs 2017 Andalusian economy is expected to reach pre-crisis growth levels through mid Potential tourism deceleration could tailoff positive prospects. Andalusian provisional GDP growth for 2017 stands c.3% while a 2.6% growth is expected for Furthermore, Tourism GDP accounted for 13% of total GDP registering a 4% growth when compared with 2016 levels. During 2017, Tourism represented 12.5% of total Employment and achieved a 5% growth over Tourism employment amounted c.245k jobs during 2016, Malaga achieved the lions share with c.30% of the total tourism employment followed by Seville and Cadiz with 18.8% and 15.6% out of the total. 2Supply & Demand Andalusia is one Top 5 ranked destination in Spain; 2016 was a landmark year in terms of visitors accounting for c.18m visitors, +7% growth compared (Jan- Oct) data suggests a potential deceleration with a modest growth of 2% for the same period in Vacational Hotspots accounted for the 52% of the total visitors. Andalusia s vacational hotspot 2017 (Jan-Oct) figures registered an Average Stay of 3.8 days and 33m overnight stays. Vacational destinations are affected by a significant seasonality, with almost 80% of the hotel supply closed during low season months. During 2017, 10 new hotels have opened with c.800 rooms, while 3 Hotels have been refurbished accounting for +1,072 rooms. Andalusia s Vacational destinations average RevPAR has grown +46% ( ) due to robust occupancy rate growth reaching 67% record breaking figure and ADR growth of +17%. Andalusia s Urban destinations average RevPAR has grown +55% ( ) boosted by occupancy rate growth reaching 72% and ADR upturns of +13%. 3Hotel Real Estate Investment Market The EMEA region accounts for 27% of the total Hotel Real Estate Investment volume while Spain accounts for 12% In Spain, Hotel Investment volume increased by 27% in 2017YTD ( 2,717m) and accounted for 31% of total nonresidential investment Malaga Province registered 100% of the total Andalusian investment market figure of 320m (2017), representing a 12% share out of the total Spanish hotel investment volume. Sevilla & Malaga strong capital value ( k/room) growth of c.12.4% has been driven by the solid Tourism Strategy Plans implemented by each City Town Hall. 5 Key 4 Factors Key Investment and Financing Drivers Full Due Diligence required to perform the optimal deal analysis: Financial Factors: Understanding of GOP vs. NOP. Business Performance: Analysis of market and income sustainability. Legal Factors: Analysis of all intervenient contracts. Comprehensive legal risk analysis. Tax Factors: Analysis of tax risks and potential tax structuring alternatives. Technical Factors: Functional use (Back of House vs. Front of House), equipment condition, legal compliance and the hotel design (BREEAM + LEED 2016 Deloite Financial Advisory 3 High Liquidity for both Equity and Lending due to the improvement of KPIs throughout Spain. Increasing financing demand for prime development projects, including refurbishment, repositioning and greenfield Location, category, performance and hotel brand significantly impact on financing terms.

Capital Value per room Trend 2006-2016 Paris London Zürich Geneva Rome Florence Amsterdam Barcelona Milan Munich Madrid Europe Sevilla Málaga Granada Córdoba Capital Values Growth (%) 2015-2016

10 years bond 0,92% 1,15% -0,22% -0,22% 2,12% 2,12% 4 bps 65 bps 22 bps 22 bps 50 bps 50 bps 43 bps 17 bps 50 bps 34 bps 17 bps 17 bps 17 bps 17 bps 17 bps 408 bps 310 bps 547 bps 522 bps 363 bps 388

9%) 0,34% 1,67% 2,12% 0,23% 1,67% 1,67% 1,67% 1,67% 1,67% 800k Drivers increase in cross-border investments: 1 2 Yielding Assets are more attractive than Investment Grade Bonds Returns expected in

4 Capital Value per room Trend Paris London Zürich Geneva Rome Florence Amsterdam Barcelona Milan Munich Madrid Europe Sevilla Málaga Granada Córdoba Capital Values Growth (%) Capital Value per room ( ) The Hotel Market: Unitary Values Analysis ( /room) The Hotel Property Handbook 10 Year Bond (1 March 2017) Yield 2016 Dif. 10 years bond 0,92% 1,15% -0,22% -0,22% 2,12% 2,12% 4 bps 65 bps 22 bps 22 bps 50 bps 50 bps 43 bps 17 bps 50 bps 34 bps 17 bps 17 bps 17 bps 17 bps 17 bps 408 bps 310 bps 547 bps 522 bps 363 bps 388 bps 516 bps 433 bps 388 bps 477 bps 538 bps 458 bps 458 bps 458 bps 458 bps (8.1%) (13.9%) 0,34% 1,67% 2,12% 0,23% 1,67% 1,67% 1,67% 1,67% 1,67% 800k Drivers increase in cross-border investments: 1 2 Yielding Assets are more attractive than Investment Grade Bonds Returns expected in Spain through hotel investment are above the European average (6.2%) (4.0%) 0.5% 1.7% 6.6% 13.9% (3.7%) (1.1%) 7.9% 11.0% 10.4% 12.4% 9.2% 3.2% 600k 400k 200k 100k 3 Strength of the dollar (For American investors) and weakness of the Euro since k 4 Political and financial uncertainly in certain countries is favouring Spain 600k 4* hotel Category 400k To take away: Malaga and Seville cities Capital Values ( /room) growth has been gaining momentum through growth is expected break record breaking figures due to the strong effort on asset repositioning and solid Tourism Strategy Plans implemented by each City Town Hall. 200k 2016 Deloite Financial Advisory Max. Min ( ) Source: HSV London

The Hotel Property Handbook Top 10 Spanish single asset transactions: # Asset Units Price ( m) Source: Deloitte Total Hotel investment volume in Spain as at 2017YTD: 2,717m A total pipeline

4 Sol Príncipe 799 89 Vacational 5 Hotel Silken 240 80 Urban 6 Hilton Diagonal Mar Barcelona 238 80 Urban 7 Ritz-Carlton Abama 50% 461 75 Vacational 8 Sol Palmanova 653 73 Vacational 9 Silken Puerta

investment volume of 2016. Hotel typology represents 31% of the total investment volume, while Andalusia represents the 12% share.

5 The Hotel Property Handbook Top 10 Spanish single asset transactions: # Asset Units Price ( m) Source: Deloitte Total Hotel investment volume in Spain as at 2017YTD: 2,717m A total pipeline investment volume of 800m is expected to be traded in Spain 75% 17% 8% 100% Typology 1 Ritz-Carlton Abama Vacational 2 Hotel Villaitana Vacational 3 Jardin Tropical Vacational 4 Sol Príncipe Vacational 5 Hotel Silken Urban 6 Hilton Diagonal Mar Barcelona Urban 7 Ritz-Carlton Abama 50% Vacational 8 Sol Palmanova Vacational 9 Silken Puerta de América Vacational 10 AC Malaga Palacio Urban 12,000 10,000 8,000 6,000 4,000 2,000 - Spanish Investment Market In 2017YTD the Hotel investment volume has exceed by 27% the investment volume of Hotel typology represents 31% of the total investment volume, while Andalusia represents the 12% share. Andalusia 320m Hotels 12,398 Malaga region 11,845 accounted for the Logistic % of hotel investment market Retail High Street Retail Shopping Centre Offices 4, ,242 1,460 3,189 3, ,056 2, , , Deloite Financial Advisory Short Term Medium Term Long Term TOTAL Source: Deloitte 5 8, ,520 5,313 1,263 1,894 2,702 4, ,769 2,420 2,145 8, YTD Source: Deloitte Data Base and third party sources For more information see CHAPTER 3 (Investment Market) +27% 1,143 1, ,717 Hotel 31%

6 The Hotel Property Handbook European Yields & Capital Values (2016): City Country Capital Value Lease Yield ( k per room) 2016 Paris France 644k 5,00% London UK 601k 4,25% Zürich Switzerland 506k 5,25% Geneva Switzerland 440k 5,00% Rome Italy 394k 5,75% Florence Italy 375k 6,00% Amsterdam Netherland 371k 5,50% Barcelona Spain 327k 6,00% Milan Italy 318k 6,00% Munich Germany 297k 5,00% Copenhagen Denmark 276k 6,00% Madrid Spain 268k 6,25% Europe 267k 6,00% Source: Deloitte Data Base For more information see CHAPTER 4 (Key Investment and Financing Drivers) in the full report. European Investment Market 3 Spanish transactions are included within the Top 10 European deals. Amounting to 987m, these Spanish transactions account for 30% of the Top 20 investment volume Andalusia Investment Market: YTD Andalusia accounted for 320m of hotel investment volume in 2017YTD, which has represented the 12% of the Spanish market. Investment appetite for coastal and urban Andalusian destinations is expected to peak during Year Q Asset Province * Rooms Price ( ) /room Vendor Buyer Q Sol Príncipe Málaga 4* ,900,000* 111,264* Starmel London & Regional Prop Q Portfolio Halley Málaga (2 assets) Málaga 4* ,900,000* 223,832 HI Partners Blackstone Q Byblos Málaga 5GL ,000, ,667 Lord Sugar Ayco Q NH Málaga Málaga 4* ,000, ,271 NH Hotel Group Hispania - SOCIMI Q Pueblo Camino Real Málaga 4* ,000,000 76,336 n.d. Logitravel Q Valle Romano 430 Tourism Apt. Málaga 4* ,000,000 37,647 Neinor Homes HIG Q Vincci Selección Posada del Patio Málaga 5* ,700, ,887 Dos Puntos Internos Global Investors Q Playacapricho Hotel Almería 4* ,560,000* 73,313 Merlin Properties Foncière des Régions Q Costa Park Málaga 4* ,850,000* 91,400 Merlin Properties Foncière des Régions Q Barcelo Costa Ballena Golf & Spa Cádiz 4* ,840,000* 91,404 Merlin Properties Foncière des Régions Q Incosol Málaga 5* ,000, ,523 Grupo JALE HI Partners Q Vincci Selección Estrella del Mar Málaga 5* ,480,000* 97,681 Acciona n.d Q Centro Forestal Sueco Málaga Apt. 2* 46 13,408, ,478 n.d. Quartiers Properties Q Las Palomas Málaga 4* ,100,000 42,395 Hoteles C Palia Hotels Q Gran Cervantes by Blue Sea Málaga 4* ,600,000* 31,658 Blue Sea Portobello Q Tryp Alameda Málaga 4* 136 9,970,000* 73,309 Merlin Properties Foncière des Régions Q Tryp Jerez Jerez 4* 98 8,960,000* 91,429 Merlin Properties Foncière des Régions Q Marlin Hotel Antilla Playa Huelva 2* 75 2,300,000* 30,667 Gestión Lepemar Seville Private investor * Estimated Value Q Eurostars Gran Vía Granada 5* 34 undisclosed n.d. Fontecruz Hoteles Eurostars Hotel Company Q Eurostars Sevilla Boutique Sevilla 4* 40 undisclosed n.d. Fontecruz Hoteles Eurostars Hotel Company Q Best Sabinal Almeria 4* 505 undisclosed n.d. Hoteles Hesperia Best Hotels Q Monasterio de San Miguel Cádiz 4* 165 undisclosed n.d. BBVA Renting Hotusa Q Parque Central de Valencia Valencia 4* 192 undisclosed n.d. Sareb Senator Hotels & Resorts Q Holiday Inn San Juan Beach Alicante 4* 126 undisclosed n.d. n.d. Port Hotels Q Holiday Inn Elche Alicante 4* 90 undisclosed n.d. n.d. Port Hotels Q Hotel Suites Puerto Marina Almería 4* 131 undisclosed n.d. n.d. Senator Hotels & Resorts Source: Deloitte Data Base and third party 2016 Deloite Financial Advisory 6 For more information see CHAPTER 3 (Investment Market)

The Hotel Property Handbook Vacational Hotspots performance Andalusia s Vacational Hotspots RevPar increased by 49% on average from 2013 to 2017 YTD (oct 2017). RECORD FIGURES 2016 75.

3% of Spain s GDP TOURISM COMPETITIVENESS Spanish Tourism industry acknowledged as the world s most competitive EMPLOYMENT Tourism-related employments accounts for 12% of Spain s employments

CONSUMER CONFIDENCE CCI has experienced an Uptrend since 2012 and is close to max. levels BUSINESS CONFIDENCE Tourism Business Confidence close to max.

115 110 106 110 113 105 105 100 100 105 95 2013 2014 2015 2016 2017 (Jan-Oct) Andalusía Catalonia Community of Valencia Balearic Islands Canary Islands Avrg. Vacational dest.

7 The Hotel Property Handbook Vacational Hotspots performance Andalusia s Vacational Hotspots RevPar increased by 49% on average from 2013 to 2017 YTD (oct 2017). RECORD FIGURES million tourists came to Spain in 2016 spending 77.6k million SPAIN S GDP grew by 3.2% during Tourism accounts for 11.3% of Spain s GDP TOURISM COMPETITIVENESS Spanish Tourism industry acknowledged as the world s most competitive EMPLOYMENT Tourism-related employments accounts for 12% of Spain s employments GEOPOLITICAL CONTEXT The Spanish Tourism Industry is benefiting from the current geopolitical context GROWTH BREXIT In contrast to previous estimates, 12% more UK tourists came to Spain during 2016 CONSUMER CONFIDENCE CCI has experienced an Uptrend since 2012 and is close to max. levels BUSINESS CONFIDENCE Tourism Business Confidence close to max. levels since 2016 RevPar ( ) Evolution by hotspot (2013=100) VACATIONAL Main vacational hotspots (Jan-Oct) Andalusía Catalonia Community of Valencia Balearic Islands Canary Islands Avrg. Vacational dest. Andalusia vacational Hotspots (Jan- Costa de Almería Costa de la Luz de Cádiz Oct) Costa de la Luz de Huelva Costa del Sol Costa Tropical Andalusia vacational destinations current supply is in general terms obsolete and outdated. To Take Away: Both refurbishment and repositioning would be the key drivers of revenue increases in KPI s evolution (2013 to 2016 Deloite Financial Advisory 7 ADR For more information see CHAPTER 2 (Supply and Demand) + Occupancy = SPAIN - Vacational +27% +785bps +41% Andalusia Vacational Destinations +17% +1,323bps +49% RevPar

8 The Hotel Property Handbook Urban Hotspots performance Andalusia s Urban hotspots RevPar increased by 55% on average from 2013 to 2017 YTD (oct 2017). The Experience Revolution Expectations survey by Deloitte 2017 expectations Market evolution by segment Business 3% Leisure 3% Much better than 2016 Better than % 67% Andalusia s urban destinations gaining momentum thanks to the solid Tourism Strategies and Suitability plans that are being implemented by the key cities Tow Halls. To Take Away: Strong Marketing strategies and loyalty programs are becoming key revenue drivers. 35% 28% 2% Similar to 2016 Much worse than 2016 Worse than 2016 RevPar ( ) Evolution by hotspot (2013=100) Urban Main urban hotspots KPI s evolution (2013 to 2017YTD) Andalusia Urban 2016 Deloite Financial Advisory 8 ADR For more information see CHAPTER 2 (Supply and Demand) Sevilla Granada (Jan-Oct) Malaga + Occupancy = Avrg. Urban destinations (Spain) SPAIN - Urban +20% +1,392bps +49% Andalusia Urban Destinations % Madrid Barcelona (Jan-Oct) Bilbao Valencia Avrg. Urban destinations (Spain) ,227bps +55% Córdoba RevPar

200 180 160 140 120 100 80 60 40 20-12000 10000 8000 6000 4000 2000 0 The Hotel Property Handbook 2017 YTD openings by type of project: Spain Andalusia Spanish hotel new openings

9 The Hotel Property Handbook 2017 YTD openings by type of project: Spain Andalusia Spanish hotel new openings Significant hotel openings during 2017YTD (Dec. 2017) Hotel openings trend ( YTD) (number of hotels and rooms) New Openings Refurbishment Chain/Brand Conversion Andalusia Figures 10 Hotels c.818 Rooms 3 Hotels 1,072 Rooms 31 Hotels 3,840 Rooms Ongoing projects 11% New openings 20% Refurbishment 18% Chain/Brand Conversion 51% Ongoing projects 4% New openings 22% Chain/Brand Conversion 67% Refurbishment 7% Ongoing Projects Hotels 184 Rooms Source: Censo Alimarket Hoteles (2017YTD Dic. 2017) The main chains priorities are asset renovation, brand repositioning, innovation and sustainability in order to overcome seasonality and foster client loyalty YTD New Hotels # rooms Source: Censo Alimarket 2016 Deloite Financial Advisory 9 For more information see CHAPTER 2 (Supply and Demand)

10 Main Conditions The Hotel Property Handbook MAIN DRIVERS FOR THE INCREASING LENDING DEMAND MACROECONOMIC ENVIRONMENT Improvement of fundamentals Monetary Policy: QE, low funding costs, etc. Financing Market Yielding assets: Increasing lending demand due to the outstanding tourism industry performance Framework Main Players Upfront Fee Credit Access Constraints Institutional Investors / Debt Funds bps bps Financing Upturn Banking / Insurance Companies bps 2017YTD bps FINANCIAL SECTOR Restructuring of the Financial Sector P&L reconstruction Spread bps bps bps bps REAL ESTATE INVESTMENT MARKET Excess of Liquidity: Increase in transactions Entry of new sponsors Alternative to the fixed income / bond yields LTV (1) 45-50% 45-55% 50-60% 50-65% Balloon (2) 60-80% % % % Development loans: Traditional lenders are coming back Senior Debt: Yielding assets: gathering momentum (1) Sustainable LTV to deal with the debt service with high funding costs (A higher LTV will result in a greater debt service) (2) A Balloon is required to cover the high funding costs during the loan s life (a lower balloon will result in a greater annual debt service). Estimated balloon for a 5-7 years loan. Location, category, performance, type of operating contract (and mandatory period duration) and hotel brand significantly affect financing terms. Source: Deloitte For more information see CHAPTER 4 (Key Investment and Financing 2016 Deloite Financial Advisory 10

11 The Hotel Property Handbook Main Players: Equity Main Chains THE CORE PROFILE STILL DOMINATES THE MARKET: More than 10,000 rooms in Spain Local Players Core+ 11% Value Added 10% Core 79% Core+ 29% Value Added 4% Core 67% NPLs portfolios m Core 1,702 Core+ 234 Value Added 209 Source: Deloitte m Core 1,822 Core+ 790 Value Added 105 Debt Miguel Sanchez Hoteles The Most active players are expected to stay active in 2018: Source: Deloitte For more information see CHAPTER 4 (Key Investment and Financing 2016 Deloite Financial Advisory 11

12 The Hotel Property Handbook WHAT IS 2016 Deloite Financial Advisory 12

13 Innovation The Hotel Property Handbook Sustainability BREEAM & LEED Digital strategy LEADING SUSTAINABILITY CERTIFICATIONS Hotel Property Customised experiences Renovation BREEAM and LEED certifications are the most significant sustainability certifications worldwide. Both standards are regularly updated in line with the market. Brand 2016 Deloite Financial Advisory 13

14 The Hotel Property Handbook Most significant value drivers for CEOs in 2017 Expectativas 2017 The Experience Revolution #1 Income increase #2 Operating margin improvement #3 Talent and brand management Select the two most significant drivers to improve capital and asset efficiency in 2017 Investment repositioning Optimise and invest in asset maintenance Systems investments Non-profitable asset sales Cash Management Funding sources renegotiation Accounts receivable and payable management 15% 17% 23% 25% 28% 35% 33% #4 Asset and capital efficiency Acquisitions Supplier and debtor management CapEx optimisation 2% 7% 2016 Deloite Financial Advisory 14

15 Javier García-Mateo, MRICS Partner Financial Advisory Real Estate Mob: Jose María Espejo Senior Manager Financial Advisory Real Estate Phone: Fernando Baldellou Partner Head of Financial Advisory Hospitality Phone: Leopoldo Parias The Hotel Property Handbook Partner Financial Advisory Mob: Jordi Schoenenberger Partner Hospitality Industry Leader Phone: Deloite Financial Advisory 15

16 @ 2016 Deloite Financial Advisory 16

The Hotel Property Handbook 3.0

The Hotel Property Handbook 3.0 Investment & Financing Keys Executive Summary May 2018 Financial Advisory I Real Estate & Hospitality @ 2017 Deloite Financial Advisory & Hospitality 1 The Hotel Property