2011 Hotel investment strategy :

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1 2011 Hotel investment strategy : What every developer should know New World Hotel 27 Sept, 2011 Presented by: Robert McIntosh, Executive Director, CBRE Hotels, Asia Pacific.

2 SUMMARY Hotel Performance Hotel Investment in the Region Hotel Investment across property sectors Hotel REITs Sale and Leaseback Management and Brand Standard Maximising returns eu CB Richard Ellis Page 2

3 Hotel Performance

4 Hotel Performance in the Region (Upper-Upscale-Luxury) USD Average Daily Rate (MAT) Jun-07 Dec-07 Jun-08 Dec-08 Jun-09 Dec-09 Jun-10 Dec-10 Jun-11 Source: STR Global/CBRE Hotels Vietnam Singapore Kuala Lumpur Jakarta Bangkok Manila Hong Kong SAR CB Richard Ellis Page 4

5 Hotel Performance in the Region (Upper-Upscale-Luxury) Occupancy (MAT) 90% 85% 80% 75% 70% 65% 60% 55% 50% Jun-07 Dec-07 Jun-08 Dec-08 Jun-09 Dec-09 Jun-10 Dec-10 Jun-11 Source: STR Global/CBRE Hotels Vietnam Singapore Kuala Lumpur Jakarta Bangkok Manila Hong Kong SAR CB Richard Ellis Page 5

6 Hotel Performance in the Region (Upper-Upscale-Luxury) RevPAR (MAT) Indexed Local Currency Jun-07 Dec-07 Jun-08 Dec-08 Jun-09 Dec-09 Jun-10 Dec-10 Jun-11 Vietnam Singapore Kuala Lumpur Jakarta Bangkok Manila Hong Kong SAR CB Richard Ellis Page 6

7 Demand in HCMC 9,000 8,000 umber of visitor rs ('000) N 7,000 6,000 5,000 4,000 3,000 2,000 1, International visitors to HCMC ('000) Domestic visitors to HCMC ('000) CB Richard Ellis Page 7

8 Hotel Supply in HCMC 5,000 4,000 tel rooms Number of hot 3,000 2,000 1, F 5 star 4 star 3 star CB Richard Ellis Page 8

9 5 Star Supply and Occupancy HCMC 5,000 5 star 75% 70% tel rooms Number of hot 4,000 3,000 2,000 1, F 65% 60% 55% 50% 45% 40% 35% 30% Supply Occupancy CB Richard Ellis Page 9

10 4 Star Supply and Occupancy HCMC 3,000 4 star 90% 80% Number of hote el rooms 2,000 70% 60% 1,000 50% 40% F 30% Supply Occupancy CB Richard Ellis Page 10

11 3 Star Supply and Occupancy HCMC 5,000 3 star 90% Number of ho otel rooms 4,000 3,000 2,000 80% 70% 60% 50% 1,000 40% F 30% Supply Occupancy CB Richard Ellis Page 11

12 Supply Projections HCMC 7,000 6,000 rooms Number of hotel 5,000 4,000 3,000 2,000 1, F star 4 star 3 star CB Richard Ellis Page 12

13 Hotel Investment Climate

14 Hotel Sales Volume (Asia Pacific) $2.0 Hotel sales volume (US$ Billions) $1.8 $1.6 $1.4 $1.2 $1.0 $0.8 $0.6 $0.4 $0.2 $0.0 08Q1 08Q2 08Q3 08Q4 09Q1 09Q2 09Q3 09Q4 10Q1 10Q2 10Q3 10Q4 11Q1 11Q2 Source : RCA CB Richard Ellis Page 14

15 Where are Investors currently investing? Macau Cambodia Not Applicable Current investment in the following Asian markets Philippines Vietnam Malaysia Japan Hong Kong Indonesia India Tier 2 Chinese cities Tier 1 Chinese cities Australia & New Zealand Singapore Thailand 0% 5% 10% 15% 20% 25% 30% 35% 40% Source Terrapinn, Hospitality Real Estate Investment survey 2011 CB Richard Ellis Page 15

16 What scares investors? Local Legislation as a barrier of entry for business High financing costs The biggest risk factor to Asian hospitality real estate investment in the next months Terrorism Currency risk Inflation Economic Instability Political Instability Real Estate price bubbles Source Terrapinn, Hospitality Real Estate Investment survey 2011 CB Richard Ellis Page 16 0% 10% 20% 30% 40% 50% 60% 70%

17 Where are Investors planning to invest? Macau Cambodia Australia & New Zealand Japan Tier 1 Chinese cities Thailand Malaysia Hong Kong Tier 2 Chinese cities Indonesia India Philippines Singapore Vietnam Future investment in the following Asian markets Source Terrapinn, Hospitality Real Estate Investment survey 2011 CB Richard Ellis Page 17 0% 5% 10% 15% 20% 25% 30% 35% 40%

18 Where Investors see potential? Boutique resorts Themed/concept hotels Luxury resorts The greatest growth potential in Asia in the next months Themed/concept resorts Integrated resorts Beach resorts Boutique serviced apartments Family-oriented serviced apartments Recreation resorts Luxury serviced apartments t Boutique hotels Full-service hotels Budget hotels Economy hotels Source Terrapinn, Hospitality Real Estate Investment survey 2011 CB Richard Ellis Page 18 0% 5% 10% 15% 20% 25% 30% 35% 40% 45% 50%

19 Hotel Assets in a Diversified Portfolio

20 Hotel Investment Characteristics Risk/Volatility Security of income Investing in a business not just a property Dependent upon the management Client mix External factors Occupancy room and rates Gearing effect of changes in income Different e cycles to the rest of property CB Richard Ellis Page 20

21 Relative performance in Australia CB Richard Ellis Page 21

22 Hotel Assets considerations include Commercial Property Specific Location Quality of building Sector Specific Corporate Profitability Growth in employment Maintenance costs Length of leases and quality of tenants Hotels as above, plus Property Specific Sector Specific Branding Infrastructure t Source of business Availability of staff Face CB Richard Ellis Page 22

23 Hotel Yield across property sectors (Australia) CB Richard Ellis Page 23

24 HOTEL REITs A current fad or a long term change?

25 Real Estate Investment Trust - REIT A corporation or trust that uses the pooled capital of many investors to purchase and manage income. REITs are traded d on major exchanges just like stocks. They are also granted special tax considerations. REITs offer several benefits over actually owning properties. First, they are highly liquid, unlike traditional real estate. Second, REITs enable sharing in non-residential properties as well, such as hotels, malls, and other commercial or industrial properties. Third, there's no minimum investment with REITs. Legislation in Japan, Singapore, Hong Kong, South Korea, Taiwan, Thailand and Malaysia CB Richard Ellis Page 25

26 REITs in Asia CB Richard Ellis Page 26

27 HOTEL REITs Number New proposals Reasons Lease structures Development Gearing Management Establishment costs Institutionalisation of investment CB Richard Ellis Page 27

28 REITs CB Richard Ellis Page 28

29 SALE and LEASEBACK An alternative exit strategy

30 SALE and LEASEBACK Sale of assets but retain the use through a lease agreement. Lease Payment is fixed or fixed + variable rent. Releases capital for owners Provides investors with a more secure income flow Need to understand the risks Popular in parts of Europe and across Japan CB Richard Ellis Page 30

31 SALE and LEASEBACK Hotel Lease Agreement Some negotiation points Rental structure Term of the Lease Renewal options FF&E Capex Daily maintenance Security deposit Insurance Assignment Audits Contract Expiration CB Richard Ellis Page 31

32 HOTEL OPERATOR AND DESIGN Some issues

33 How to choose an Operator An International Management Company could be an advantage but need to carefully consideration during : Before Opening Selection of Operator Selection of Brand Commercial Terms (MOU) Management Contract After Opening Yearly Budget Approval Monthly Budget Review Mistakes during the selection process can be very costly for developers. CB Richard Ellis Page 33

34 What does the Developer wants? Owner Operator-Partner Maximize ROI Owner design Full Owner Control Owner Purchasing Control Flexible Brand (lower costs) Operator Operator only Maintain standards Operator design Full Operator Control Operator Purchasing Control Inflexible Brand Short Contract (5-10 years) Long contract (30-50) Right to Terminate Limited standardisation Not Terminable Compliance with standards CB Richard Ellis Page 34

35 Brand Standard How brand compliance controls works? Construction Phases MasterPlan approval /Design Finalizing Desing/Pre Construction construction Pre Opening Operating Operator s Personnel involvement - Technical Service Agreement Input from Business Developer General Suggestions Operator Project Manager (headquarter), Design review, focusing on : Room size Circulations Reception Facilities VP Operation (inspections) Safety Regulation.. Purchasing Department (inspections) Hotel Equipment Furniture VP Operation : GM hiring Staff training VP Operation Brand standard Control Landscaping Parking CB Richard Ellis Page 35

controlled air-conditioning Fridge Safe deposit box Clock/radio ISD/STD

36 Design and Brand Standard Case study : Ibis, Accor Hospitality Room type : Twin / King 17 sqm In room facilities include : Individually controlled air-conditioning Fridge Safe deposit box Clock/radio ISD/STD telephone and voic Tea/coffee facilities Television CB Richard Ellis Page 36

37 MAXIMISING RETURNS Some issues

38 MAXIMISING RETURNS Do you know as much as the operator? If its an international brand stick with the standards Don t get carried away with the excitement focus on $$$s Think of the future not the past Where does the profit come from? Additional income sources risks and compatibility Retail Spa Gaming Food and beverage Nightclub Control costs Match the brand with the property CB Richard Ellis Page 38

39 CBRE Vietnam Hotel Services Brokerage Operator Selection Operator Finding Management Contract Negotiation Investment Advisory Valuation Development Consultancy Market Research CB Richard Ellis Page 39

40 SUMMARY Hotel Performance Hotel Investment in the Region Hotel Investment across property sectors Hotel REITs Sale and Leaseback Management and Brand Standard CB Richard Ellis Page 40

41 Thank you Mauro Gasparotti Hotel Services - CBRE Vietnam M Mauro.Gasparotti@cbre.com CB Richard Ellis Page 41 KEY CONTACTS Duong Thuy Dung Research & Consultancy - CBRE Vietnam M dung.duong@cbre.com Robert McIntosh Executive Director - CBRE Hotels Asia Pacific M Robert.McIntosh@cbre.com 2010 CB Richard Ellis (Vietnam) Co., Ltd.

TOURISM AND HOSPITALITY IN ASIA PACIFIC. February 2018

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