REFCON INVESTMENTS IN HOTEL REFURBISHMENTS AND HOTELS UNDER CONSTRUCTION IN SPAIN SPAIN HOTELS 1H 2018

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1 H REFCON INVESTMENTS IN HOTEL REFURBISHMENTS AND HOTELS UNDER CONSTRUCTION IN SPAIN SPAIN HOTELS 1H 2018

2 3,137 million invested in the Spanish Hotel Market in the last three years

3 01 INVESTMENTS IN HOTEL REFURBISHMENTS AND HOTELS UNDER CONSTRUCTION IN SPAIN While the tourist sector in Spain has been one of the main drivers of the country s economy for decades, the milestones reached in recent months has put Spain in an even better position as a top tourist destination. The figures on investments in s and new-builds analysed in this report are explained to a large degree by the extraordinary achievements of becoming, for the first time ever, the second most popular tourist destination in the world in terms of total tourist numbers (beaten only by France) and total revenues received (second only to the USA), and simultaneously topping the World Economic Forum s Travel and Tourism Competitiveness Index in This ranking is indubitably recognition of a job well done; of the ongoing commitment to further develop and strengthen one of the largest sectors in Spain, not only by the Government but also by private investors and hotel chains that have worked hard to improve the management of and refurbish their hotels to achieve such success. An indication of their efforts is the 3,137 million invested in hotel s and hotel construction over the last three years ( ). These funds have been earmarked to renovate or build 742 hotels with a total of 127,400 rooms. Based on these figures, it can be concluded that 17% of the hotel stock in Spain is new or was revamped during the aforesaid period. Furthermore, at the date of this report some 6,198 million has been set aside for further investment in the near to medium term to refurbish or build 522 hotels and 82,480 rooms. This once again highlights the sector s outstanding commitment in the coming years. Of this total earmarked investment, 68% will be to build new establishments, underlining the recovery in the construction of new hotels, which has been hard hit by the crisis over the last decade. In fact, as show in the following graph, new-builds which accounted for 943 million of the total investment over the period 2015 to 2017 only started gaining importance once more last year. TOTAL INVESTMENT VOLUME ( MN) 6,198 Mn 3,500 3,000 2,500 2,000 1,500 1, ,261 2,937 3,137 Mn + 113% 29% 35% + 20% 1, % 1,146 71% % 65% 73% 96% 27% 45% E 2019E and New-build investment Refurbishment investment thereafter Source: Colliers International / *Figures relating to projects in the pipeline at the date of this report. Along the same lines, it can be seen that the recovery in investments in s and new-builds over the last three years is closely connected with both the improvement in the hotel sector s operating profits and the amount invested in hotel acquisitions (which also hit a high in the period ), as well as the profile of the buyers thereof, who are more professional and offer a large degree of value added 1. 1 Value-add investors: search for assets that have the potential to generate value through their or repositioning. Investments in hotel s and hotels under construction in Spain 3

4 In terms of the extent of work carried out over the last three years, 30% of funds invested went on newbuilds (86 hotels, 8,890 rooms), 42% on complete s (172 hotels, 34,190 rooms), 25% on partial s (304 establishments, 54,030 rooms), and the remaining 3% on smaller isolated work, albeit affecting 180 hotels and 30,280 rooms. INVESTMENT VOLUME BY EXTENT OF WORK, ( MN) Partial : 774 Mn 304 establishments 54,030 rooms 25% 3% Isolated work: 86 Mn 180 establishments 30,280 rooms 3,137 Mn 742 hotels 127,400 rooms 30% : 1,334 Mn 172 establishments 34,190 rooms 42% New-build: 943 Mn 86 establishments 8,890 rooms Source: Colliers International New-build: Constructuon of new buildings, changes in use of existing buildings and extensions. of existing hotels: alterations to layout and resizing of rooms, provided it affects a large proportion of the entire hotel. Partial of existing hotels: changes in category, of shared spaces and/or bathrooms, revamping of FF&E, total refit of installations. Isolated work: alterations to a small percentage of rooms, common spaces, facilities, specific installations, etc. INVESTMENTS BY ASSET TYPE INVESTMENTS BY ASSET TYPE, ( MN) By type of asset, 72% of investments was spent on holiday-resort hotels, totalling 2,250 million between 2015 and This demonstrates the strategic decision taken by owners in the most popular geographical locations, prompted by a substantial hike in operating profits, to reinvest a significant part of these earnings in revamps aimed at boosting customer loyalty. This approach has also enabled them to respond robustly to the recovery of competitor destinations such as Turkey, Greece, Egypt, Tunisia and Morocco. 100% 80% 60% 40% 20% 0% 77% 73% 68% 23% 27% 32% City Holiday-resort Source: Colliers International 4 Investments in hotel s and hotels under construction in Spain

5 The project that will change Madrid

6 MAIN LOCATIONS OF INVESTMENT Turning to geographic distribution, just five destinations received 82% of the total funds invested in hotel construction and s over the last three years. The Balearic Islands enjoyed the greatest investment of 1,121 million (36% of the total), followed by the Canary Islands with 625 million (20%), Barcelona with 318 million and Madrid with 315 million (both receiving 10%), and lastly the Costa del Sol with 193 million (6%). In all these destinations, it can be seen that the amounts spent on still outstrips that channelled into newbuilds. However, looking at future investments, the amounts planned to be invested in building new hotels are rising in the main destinations. It is worth noting that three of the five top destinations (the Balearic Islands, the Canary Islands and Barcelona) have strict regulations that hinder or prohibit the construction of new hotels, which is clearly driving investments in work. In this regard, the Balearic Islands has received the greatest amount of funds for repositioning hotels, thanks to the political measures to encourage hotel modernisations that came to an end midway through At the date of this report, 24% of hotels in the Balearic Islands are new or were revamped in the last three years; well above the national average. MAIN LOCATIONS OF REFURBISHMENT INVESTMENT IN SPAIN ( ) Balearic Canary Madrid Barcelona Costa del Sol 1,121 Mn 615 Mn 315 Mn 318 Mn 193 Mn Main Locations Refurbishment investment ( Mn) % total investment New-build investment ( Mn) % total new-builds Total ( Mn) % total investment Spain Balearic Islands % % 1,121 36% Canary Islands % % % Barcelona % % % Madrid % % % Costa del Sol % 23 12% 193 6% Rest of España % % % Total, Spain 2,194 70% % 3, % Source: Colliers International 6 Investments in hotel s and hotels under construction in Spain

7 AVERAGE INVESTMENT BY CATEGORY AND EXTENT OF WORK The sample analysed in this report, comprising 1,264 establishments with approximately 210,000 rooms, provides specific ratios per room broken down by extent of work performed and hotel category. It can be seen that the lion s share of work has involved four-star hotels, with an average budget of 17,200 per room for partial s, 54,000 for complete s, and around 130,000 per room for new hotels or properties converted for hotel use. AVERAGE INVESTMENT ( /ROOM) BY CATEGORY AND EXTENT OF WORK ON PROJECTS ANNOUNCED SINCE 2015ANUNCIADOS DESDE 2015 Category / exent of work Isolated work ( /room) Partial ( /room) ( /room) New-build / Change in use( /room) 1-2S 1,300 5,800 18,300 40,300 3S ,700 30,400 75,400 4S 3,300 17,200 54, ,000 5S & 5SSL 5,200 32, , ,000 Average 2,860 16,000 57, ,100 Sample of fewer than 15 establishments Sample of 15 to 50 establishments Sample of over 50 establishments Source: Colliers International / The colour scale indicates the number of rooms in the sample that have been refurbished (the higher the proportion, the darker the colour).

8 PROJECTS IN PROGRESS Several projects stand out from among the 522 future and new-build projects announced as of the date of this report, due to the importance of the international brands that the projects have attracted to Spain (Four Seasons Madrid Canalejas, Mandarín Oriental Madrid and Starwood with its brand W in Madrid and Marbella), and the extent of the complete s involved because of the size of the hotels in question (Riu Plaza de España in Madrid and the San Miguel complex in Ibiza). MAJOR REFURBISHMENT AND NEW-BUILD PROJECTS IN THE PIPELINE Project Population Type Category Rooms Extent of work San Miguel Resort (Hispania project with 2 operators)" Hotel Bless Ibiza (formerly Fiesta Cala Nova) Hotel Nobu (formerly Gran Hotel Torre Catalunya) Sant Joan de Labritja - Ibiza Holiday-resort 4S 484 Santa Eulalia del Río - Ibiza Holiday-resort 5S 305 Barcelona City 5S 257 Partial Hotel Suites Miranda Real (Hispania project) Corralejo - Fuerteventura Holiday-resort 5S 450 New-build Hotel Four Seasons Canalejas Madrid City 5SSL 200 Hotel Riu Plaza España Madrid City 4S 650 Hotel Mandarin Oriental (formerly Ritz) Madrid City 5SSL 162 New-build / Change of use New-build / Change of use Hotel in Celenque Building (formerly Caja Madrid head offices) Hotel W Madrid (formerly Hotel Asturias) Hotel Bless Madrid (antiguo Gran Hotel Velázquez) Madrid City 5S 180 Madrid City 5S 160 Madrid City 5SSL 111 New-build / Change of use Hotel W Marbella Marbella - Costa del Sol Holiday-resort 5SSL 200 New-build Ikos Resort (formerly Hotel Costa del Sol Princess) Estepona - Costa del Sol Holiday-resort 5SSL Investments in hotel s and hotels under construction in Spain

9 02 OUTLOOK In the near to medium term, we expect further investments in new-builds and a continuation of the strategic decision of hotel chains to channel more funds into repositioning their assets in Spain. This will pave the way for them to gain the loyalty of tourists that continue to visit Spain as a preferred destination given the country s low-risk status, infrastructures, health care and general service offering. new-builds announced to date will rise significantly in the coming months, due to the unveiling of new hotel construction projects and the reporting of s in progress that in many cases are not made public until the work is completed or the hotel reopens. This will undoubtedly improve the rating of the country s hotel stock. In this respect, we forecast that the figure of billion earmarked for future s and Investments in hotel s and new-build hotels will grow significantly in the next months Investments in hotel s and hotels under construction in Spain 9

10 CONTACT Laura Hernando Managing Director Hotels Miguel Ángel Falcón Managing Director REMS & Technical Services Content prepared by Irea Corporate Finance SL is copyright protected, pursuant to the contents of Royal Legislative Decree 1 of 12 April 1996, which approved the consolidated text of the Spanish Intellectual Property Act and which regularised, clarified and harmonised the current legal provisions governing this issue. Pursuant to the contents of Articles 17 et seq. of the aforementioned Act, users are prohibited from reproducing, distributing, publicly communicating or transforming any of the digital content prepared by irea unless they have received prior written authorisation from irea, which is the exclusive holder of all rights to exploit the said digital content.

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