A year in perspective - a review of the European hotel market and outlook Nick van Marken Chris Rouse Mark Finnie 1
Nick van Marken 2
Where were we pre-9/11? Economic environment volatility in global markets (notably TMT sector) slowdown in the US; stagnation in Japan uncertainty over growth in Germany debt default in Argentina foot and mouth outbreak in UK coming under control Political on-going Middle East crisis terrorism in Europe 3
Global industry outlook pre-9/11 US - slowdown evident Europe - southern - strong - northern - variable - overall revpar growth positive Asia-Pacific - mixed - general recovery in progress Middle East - mixed - Intifada impact 4
Europe - revpar % change to August 2001 35% Recovery Growth potential Peak Supply risk Slowdown 30% 29 25% 20% 15% 14 13 13 11 11 11 10% 8 8 8 5% 3 3 1 0% -5% (3) (2) -10% (6) 5 Moscow Milan Barcelona Madrid Geneva Lisbon Athens Rome Paris Frankfurt Brussels Prague Berlin Dublin London Amsterdam
Post - 9/11 - all bets were off Immediate impact global crisis of confidence airlines slash routes and staffing significant decline in US outbound traffic Market impact significant decline in gateway city revpar upscale sector most affected provincial markets relatively insulated balance sheet pressure; capex cuts 6
revpar % change by market tier - Sept-Dec 2001 0 Amsterdam Frankfurt London Paris Madrid Rome -5-10 -15-20 -25-30 -35 Top Mid Lower 7
Where did we end 2001 - revpar % change Number of cities Aug YTD 2001 10%+ 10%+ 9 7 <0% 0-10% 10 2 17 13 <0% 0-10% 8
Europe & US - tracking each other? - monthly revpar % change - 01/02 15% 10% 5% 0% -5% -10% -15% -20% -25% -30% 9 January February March April May June July August September October November December January Europe ( ) US$
revpar performance - Europe (2000-02) 25 20 15 10 (% change) 5 0-5 -10-15 -20 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan -25 2000 2001 2002 10
revpar performance - London (1999-02) 40 30 20 10 (% change) 0-10 -20-30 -40 Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan -50 2000 2001 2002 11
revpar performance - Paris (1999-02) 30 20 10 (% change) 0-10 -20 Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan -30-40 2000 2001 2002 12
revpar performance - Berlin (1999-02) 50 40 30 (% change) 20 10 0-10 -20 Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan -30 2000 2001 2002 13
revpar performance - Rome (1999-02) 40 30 20 (% change) 10 0-10 Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan -20-30 2000 2001 2002 14
revpar performance - Madrid (1999-02) 25 20 15 10 (% change) 5 0-5 -10-15 Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan -20 2000 2001 2002 15
revpar performance - Amsterdam (1999-02) 50 40 30 (% change) 20 10 0 Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan -10-20 2000 2001 2002 16
So, what of the future? Economic/political Improving outlook Uncertainty over US intentions in Middle East Potential volatility - notably oil price Market Improved travel outlook - upturn in airline passengers Gateway revpar decline is decelerating rapidly Transaction activity has and appears likely to continue Values should continue to trend upwards We will, however, continue to live with uncertainty 17
Chris Rouse 18
Transaction volume Euro versus non-euro zone 9,000 8,000 7,000 6,000 Euro M 5,000 4,000 3,000 2,000 1,000 0 1999 2000 2001 2002 YTD Source: Insignia Hotels Euro Zone UK Other Non-Euro Zone 19
Transaction volume Major Continental European markets - 1,400 1,200 1,000 EURO M 800 600 1999 2000 2001 400 200 0 France Germany Italy Sweden Netherlands Spain Source: Insignia Hotels 20
Transaction volume Major European markets 8,000 7,000 6,000 EURO M 5,000 4,000 3,000 2,000 1999 2000 2001 1,000 0 France Germany Italy Sweden Netherlands Spain UK Source: Insignia Hotels 21
Major corporate transactions Group Buyer Price ( m) Principal Hotels Nomura PFG 395 Heritage Hotels Macdonald Hotels Bank of Scotland 374 Posthouse Hotels 6 Continents 1,293 Swissôtel Holdings Raffles Holdings 268 Scandic Hotels Hilton Group 971 Le Meridien Group Nomura PFG 3,148 Astron Hotels (2002) NH Hotels 161 Total 6,610 22
Compass disposal of Forte Hotels Entity Buyer Price ( m) Cavendish Hotel De Vere Hotels 97 Cumberland Nomura PFG 240 Regent and Strand Palace* London & Regional 170 Heritage Hotels Macdonald Hotels 347 Posthouse Hotels 6 Continents 1,293 Le Meridien Group Nomura PFG 3,148 Return of Forte Name Sir Rocco Forte 0 Total 5,295 *unlikely to compete 23
European transactions by country Europe 1999 (%) Euros 6.9 bn 6% 9% 3% 1% 4% 64% 8% 5% Spain France Sweden Italy Ireland Germany Other UK Europe 2000 (%) Euros 5.8 bn Europe 2001 (%) Euros 11.3 bn 26% 22% 2% 2% 9% 1% 4% 23% 7% 31% 7% 3% 63% Source: Insignia Hotels 24
Impact of foot and mouth on the regional UK market 50 1,000 900 40 800 RevPAR, 30 20 700 600 500 400 FMD Cases 300 10 200 100 0 Jan Feb Mar Apr May Jun Jul Aug Sep 0 RevPAR, FMD Cases Source: Andersen, DEFRA 25
Transaction volume per month 2001 1,400 40,000 1,200 35,000 Transaction Volume (bars) M Euros 1,000 800 600 400 30,000 25,000 20,000 15,000 10,000 Rooms Sold (line) 200 5,000 0 0 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Source: Insignia Hotels 26
Sources of investment capital (%) 1999 0.4% 1.9% 8.2% 89.5% Asia Middle East US Europe 2000 2001 0.8% 0.4% 2.3% 2.4% 0.9% 1.0% 96.5% 95.7% 27
Sources of investment capital ( m) 12,000 11,000 10,000 9,000 8,000 7,000 Asia Middle East US Europe 6,000 500 0 1999 2000 2001 28
European yields Hotel Country Yield (%) Posthouse Hotels UK 12.7 Villa Magna Spain 10.6 Le Meridien Worldwide 10.0 2 Hotels Sweden 9.0 12 Meridien UK 7.6 11 Hilton Hotels UK 6.9 Heathrow Park UK 5.7 29
Mark Finnie 30
2001 - A pretty uneventful year! Jan 1 Dec 31 Accor 45 41 Hilton Group 209p 211p NH Hoteles 13 11 Six Continents 729p 680p Whitbread 550p 549p 31
2001 - Key events for the market Trading - pre- and post M&A New sources of funding Equity market review Outlook 32
M & A 33
New sources of funding 34
Hotels sector vs property sector 105 UK PROPERTY SECTOR 100 95 90 85 80 75 70 65 60 UK HOTEL SECTOR 55 1997 1998 1999 2000 2001 2002 Note: Share price performance relative to FT All-Share Source: DATASTREAM 35
Equity markets - winners and losers +26% +23% +16% +13% +6% Hilton Group Whitbread Six Continents (3%) Accor NH Hoteles Sol Melia NB: Relative to Eurostoxx 36
Multiple expansion 8.4x 7.8x 7.6x January 2001 June 2001 December 2001 Note: 2001 EBITDA multiple - European hotel sector 37
Constrained supply growth 25 1990-92 1998-00 20 15 10 % growth 5 0 London Paris Stockholm Berlin Frankfurt Madrid* Barcelona Brussels* Amsterdam Prague* Europe average The most reassuring aspect of all? Source: Jones Lang LaSalle 38
Outlook - M &A Willing buyers Willing sellers? 39
A final thought... Who is being long-term now? Capex budget Share price (%) Hilton Cut +22 Accor Cut +30 Sol Melia Deferred +9 Millennium & Copthorne Deferred +24 NH Hoteles Cut +11 Whitbread Deferred +35 Note: Share price movement since September 20 40