Focus on Scotland Hot E Masterclass Wednesday 17 th September 2014

Focus on Scotland Hot E Masterclass Wednesday 17 th September 2014 Graeme White Sector Head Tourism Scottish Development International www.sdi.co.uk

Tourism Investment Landscape Colm Lauder, Senior Associate, MSCI/IPD Sean Morgan, Managing Director, LJ Research Mitchell Gaglardi, Managing Director, Sandman Hotel Group www.sdi.co.uk

Tourism in Scotland Tourism is a hugely important industry to Scotland, contributing 4.6bn p.a employing 200,000 people in around 18,500 tourism related businesses The industry attracts over 3.3bn p.a. spend by tourists from UK and 1.68 bn p.a. spend from overseas. Scotland boasts considerable assets for international competitiveness including: Cities and National Parks, Golf, Walking, Mountain Biking, Scottish food & Drink, and world renowned highlights include: Edinburgh Castle, Festivals St. Andrews - Home of Golf The Highlands, Loch Ness (Monster!), Glasgow - Most expensive retail space outside London / Major international conference venue www.sdi.co.uk

Looking Ahead Demand emerging for additional quality accommodation products to meet demand and to maximise growth City centre Resorts Boutique Serviced Apartments Attractions Retail www.sdi.co.uk

The Investment Performance of Scottish Hotels in 2013 Colm Lauder - Senior Associate at MSCI 2014 Investment Property Databank Ltd. All rights reserved. ipd.com 5

IPD is a world leader in performance analysis for the owners, investors, managers, lenders on and occupiers of real estate. IPD provides critical business intelligence, including analytical services, indices and market information regarding performance and risks to the real estate industry worldwide. IPD is a subsidiary of MSCI Inc., a leading provider of investment decision support tools to investors globally. # 2014 Investment Property Databank Ltd. All rights reserved. 2014 Investment Property Databank Ltd. All rights reserved. ipd.com 6

IPD Investment Analysis: Method & Sample IPD Data Samples at the end of 2013 IPD Hotel sample size Scottish Sample evolution 30 14 CV m No. Props % of total IPD Pan-Europe Scotland 288.8 25 2.3% Rest of UK 2,938 191 23.3% EU 11,037 694 87.4% IPD Pan-Europe 12,634 742 - Bars: Number of properties 25 20 15 10 11.7m 11.6m 12 10 8 6 4 Line: Average Lot Size, million 5 2 0 0 Direct Property, Standing Investment, Held sample as at Q4 2013 Consistent comparison Scottish Hotels based on IPD UK Annual Index # 2014 Investment Property Databank Ltd. All rights reserved. 2014 Investment Property Databank Ltd. All rights reserved. ipd.com 7

What data is our analysis based on? IPD Scotland Hotels Sample at the end of 2013 IPD UK Hotel Sample (by CV, ) IPD Scotland All Property Sample (by CV, ) 3.2 bn 11.0 bn 288.8 m 288.8 m IPD Scotland Hotel Sample IPD UK Hotel Sample IPD Scotland All Property Sample Source: IPD UK Annual Property Index, 2013 # 2014 Investment Property Databank Ltd. All rights reserved. 2014 Investment Property Databank Ltd. All rights reserved. ipd.com 8

Returns have come back strongly in line with economic pick-up Scottish Hotels outperform wider Scottish commercial property for 3 years running Total return, % year-on-year (Local currency Stg) 16 14 12 10 8 6 9.2 9.6 9.2 4 2 0 2.1 2009 2010 2011 2012 2013 4.8 Scotland All Property Scottish Hotels UK All Property The average annual return for Scottish Hotels was 7.0% since the crash (2009 to 2013) compared to 9.1% for Rest of UK Hotels. # 2014 Investment Property Databank Ltd. All rights reserved. 2014 Investment Property Databank Ltd. All rights reserved. ipd.com 9

Investment performance overview for 2013 In Local Currency ( STG) All Property Scotland 2013 Scottish Hotels 2013 Total Return + 7.7% y/y Total Return + 9.2% y/y Income Return + 6.4% y/y Capital Growth + 1.2% y/y Income Return + 6.3% y/y Capital Growth + 2.7% y/y Source: IPD UK Annual Property Index, 2013 # 2014 Investment Property Databank Ltd. All rights reserved. 2014 Investment Property Databank Ltd. All rights reserved. ipd.com 10

The wider Scottish property market By Sector % year-on-year (Local currency Stg) 12 10.6 10 9.2 8 7.1 7.9 6 4 2 0 Hotels Scotland Retail Scotland Office Scotland Industrial Scotland Residential Scotland Income Return Capital Growth Total Return # 2014 Investment Property Databank Ltd. All rights reserved. 2014 Investment Property Databank Ltd. All rights reserved. ipd.com 11

Commercial property performance in Scotland 2004- Drivers of Total Return % year-on-year (Local currency Stg) 30 20 10 0-10 -20-30 1993 1997 2001 2005 2009 2013 Income Return Rental Value Growth Yield Impact Total Return # 2014 Investment Property Databank Ltd. All rights reserved. 2014 Investment Property Databank Ltd. All rights reserved. ipd.com 12

Scottish Hotel performance in the current cycle Value growth has returned to boost performance with consistent income levels a comfort % year-on-year (Local currency Stg) 15 10 5 3.9 2.0 2.1 9.2 9.6 4.8 9.2 0-5 -10-15 Capital Growth Income Return Total Return -20-25 -30-25.8 2006 2007 2008 2009 2010 2011 2012 2013 # 2014 Investment Property Databank Ltd. All rights reserved. 2014 Investment Property Databank Ltd. All rights reserved. ipd.com 13

Hotel investment performance across Europe Scotland and the Rest of the UK dominant performance statistics in 2013 2013 Total return, % year-on-year (Local Currency) 14 12 10 8 6 4 2 0-2 -4 2013 Total Return in Local Currency (% y/y) 2012 # 2014 Investment Property Databank Ltd. All rights reserved. 2014 Investment Property Databank Ltd. All rights reserved. ipd.com 14

Key take aways 9.2% y/y Total Return in 2013 from Scottish Hotels Scottish Hotels performed strongly with a return of 9.2% y/y, when calculated in local currency ( Stg) making the market one of the top performing in Europe; Capital Values grow by 2.7% y/y Capital values recorded modest growth in 2013, gaining 2.7% y/y for the year, compared to a decline of 1.2% y/y in 2012; Income returns remained consistent at 6.3% y/y up marginally from Scotland outperforms European average of 6.6% y/y 6.1% y/y in 2012 ; When taking into account currency effect, European Hotels returned 4.9% y/y ( currency) compared to 8.6% y/y for Rest of UK and 6.5% y/y for Scotland. # 2014 Investment Property Databank Ltd. All rights reserved. 2014 Investment Property Databank Ltd. All rights reserved. ipd.com 15

2014 Investment Property Databank Ltd (IPD). All rights reserved. This information is the exclusive property of IPD. This information may not be copied, disseminated or otherwise used in any form without the prior written permission of IPD. This information is provided on an "as is" basis, and the user of this information assumes the entire risk of any use made of this information. Neither IPD nor any other party makes any express or implied warranties or representations with respect to this information (or the results to be obtained by the use thereof), and IPD hereby expressly disclaims all warranties of originality, accuracy, completeness, merchantability or fitness for a particular purpose with respect to any of this information. Without limiting any of the foregoing, in no event shall IPD or any other party have any liability for any direct, indirect, special, punitive, consequential or any other damages (including lost profits) even if notified of the possibility of such damages. IPD An MSCI Brand Ninth Floor Ten Bishops Square London E1 6EG +44.20.7336.4783 enquiries@ipd.com ipd.com / msci.com 2014 Investment Property Databank Ltd. All rights reserved. ipd.com 16

Master Class Focus on Scotland Hotel Market Overview Sean Morgan Managing Director LJ Research 26 Alva Street Edinburgh EH2 4PY @ljresearch.co.uk

UK tourism: A rocky road to recovery? 600,000,000 80,000,000 Scotland Scotland vs. Rest of Bed UK nights Bed nights 70,000,000 500,000,000 60,000,000 400,000,000 50,000,000 40,000,000 300,000,000 30,000,000 200,000,000 20,000,000 RoUK- Domestic RoUK- Overseas Domestic Sco- Domestic Overseas Sco- Overseas 10,000,000 100,000,000 0 0 2009 2010 2011 2012 2013 2009 2010 2011 Scotland 2012 2013 2013 vs. 2009: -9% -1% 2013 vs. 2012: +2% - Source: VisitBritain

Occupancy 100% 95% 90% 85% 80% 75% 70% 65% SCO ABD EDI GLA 60% 55% 50% Q4 2009 Q1 2010 Q2 2010 Q3 2010 Q4 2010 Q1 2011 Q2 2011 Q3 2011 Q4 2011 Q1 2012 Q2 2012 Q3 2012 Q4 2012 Q1 2013 Q2 2013 Q3 2013 Q4 2013 Q1 2014 Q2 2014 Q3 2014 74.6% 74.8% 75.8% 78.4% (+3.4% vs. 2012) (+2.7% vs. 2013) Please note: Q3 2014 based on July and August only.

Occupancy Year-on-Year 10% 9% 8% 7% 6% 5% 4% 3% 2% 1% 0% -1% -2% -3% -4% -5% Q4 2010 Q1 2011 Q2 2011 Q3 2011 Q4 2011 Q1 2012 Q2 2012 Q3 2012 Q4 2012 Q1 2013 Q2 2013 Q3 2013 Q4 2013 Q1 2014 Q2 2014 Q3 2014 +0.3% +1.3% +3.4% +2.7% ABD EDI GLA SCO Please note: Q3 2014 based on July and August only.

ARR 130 120 110 100 90 80 70 60 SCO ABD EDI GLA 50 40 Q4 2009 Q1 2010 Q2 2010 Q3 2010 Q4 2010 Q1 2011 Q2 2011 Q3 2011 Q4 2011 Q1 2012 Q2 2012 Q3 2012 Q4 2012 Q1 2013 Q2 2013 Q3 2013 Q4 2013 Q1 2014 Q2 2014 Q3 2014 75.38 75.34 76.36 78.44 (+2.7% vs. 2012) (+6.6% vs. 2013) Please note: Q3 2014 based on July and August only.

ARR Year-on-Year 25% +37.6% 20% 15% 10% 5% 0% ABD EDI GLA SCO -5% -10% -15% Q4 2010 Q1 2011 Q2 2011 Q3 2011 Q4 2011 Q1 2012 Q2 2012 Q3 2012 Q4 2012 Q1 2013 Q2 2013 Q3 2013 Q4 2013 Q1 2014 Q2 2014 Q3 2014-0.1% +1.4% +2.7% +6.6% Please note: Q3 2014 based on July and August only.

RevPAR 130 110 90 70 50 SCO ABD EDI GLA 30 10 Q4 2009 Q1 2010 Q2 2010 Q3 2010 Q4 2010 Q1 2011 Q2 2011 Q3 2011 Q4 2011 Q1 2012 Q2 2012 Q3 2012 Q4 2012 Q1 2013 Q2 2013 Q3 2013 Q4 2013 Q1 2014 Q2 2014 Q3 2014 56.71 56.93 58.38 62.13 (+6.4% vs. 2012) (+9.6% vs. 2010) (+9.6% vs. 2013) (+19.7% vs. 2010) Please note: Q3 2014 based on July and August only.

RevPAR Year-on-Year +40.5% 25% 20% 15% 10% 5% 0% ABD EDI GLA SCO -5% -10% -15% Q4 2010 Q1 2011 Q2 2011 Q3 2011 Q4 2011 Q1 2012 Q2 2012 Q3 2012 Q4 2012 Q1 2013 Q2 2013 Q3 2013 Q4 2013 Q1 2014 Q2 2014 Q3 2014 +0.4% +2.5% +6.4% +9.6% Please note: Q3 2014 based on July and August only.

Occupancy vs. ARR: Year-on-Year 15% 10% 5% Occ ARR 0% -5% Q4 2010 Q1 2011 Q2 2011 Q3 2011 Q4 2011 Q1 2012 Q2 2012 Q3 2012 Q4 2012 Q1 2013 Q2 2013 Q3 2013 Q4 2013 Q1 2014 Q2 2014 Q3 2014 Please note: Q3 2014 based on July and August only.

Scotland - RevPAR : Star Rating 90 80 70 60 +23.6% +19.6% 50 40 1-3 Star 4-5 Star 30 20 10 0 45.88 64.44 46.75 64.75 47.69 66.13 50.41 71.60 56.73 77.07 2010 2011 2012 2013 Jan - Aug 2014

Scotland - RevPAR: Brand vs. Non-Brand 80 70 +16.0% +32.4% 60 50 40 30 Branded Non-Branded 20 10 0 57.29 54.32 57.51 54.48 57.76 61.20 60.52 67.22 66.48 71.91 2010 2011 2012 2013 Jan - Aug 2014

Hotel Supply 18% 16% 14% 12% 10% 8% 6% 4% Aberdeen Edinburgh Glasgow Scotland 2% 0% 2009 2010 2011 2012 2013 YTD 2014 Active Pipeline (2014-2017) ABE: + 26.4% EDI: + 17.6% GLA: + 13.6% SCO: + 8.3% Source: AM:PM Hotels

Scotland - Forward Bookings GLA: + 9 pp 80% 70% 60% GLA: + 11 pp 50% 40% 30% 20% GLA: + 13 pp 2010 2011 2012 2013 2014 10% 0% Sep Oct Nov Dec Jan Feb

ARR vs. Accommodation Satisfaction 9.5 100.00 90.00 9 80.00 8.5 8 7.5 70.00 60.00 50.00 40.00 30.00 20.00 10.00 Satisfaction with Room Value for Money GLA & EDI ARR 7 Q1 2011 Q2 2011 Q3 2011 Q4 2011 Q1 2012 Q2 2012 Q3 2012 Q4 2012 Q1 2013 Q2 2013 Q3 2013 Q4 2013 Q1 2014 Q2 2014 0.00

Why chose accommodation? 0% 10% 20% 30% 40% 50% 60% 70% City centre location Price / best value for money Near to places to visit Quality of accommodation Good public transport links Review of the accommodation Special promotion on at the time Convenient for a specific event +5 pp +4 pp 2011 2012 2013 2014 (Jan-Jun) It was part of a pre-arranged trip / tour / package Personal recommendation Always try to use this hotel chain +5 pp

Sean Morgan T: 0131 623 6237 E: sean@ljresearch.co.uk Thank you!

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www.sdi.co.uk Attracting Investment to Scotland: Our Role

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Royal Exchange Square Glasgow is a shopaholic s paradise according to Lonely Planet The top place to shop in the UK, second only to London s West End. Number one Scottish destination on the rise and third in the UK according to TripAdvisor. The only city to feature twice in the coveted Louis Vuitton European Cities Guide in 2009 and 2013. Glasgow s, Riverside Museum, won the prestigious European Museum of the Year in 2013. Glasgow hotels are enjoying their highest occupancy levels for 15 years in 2013/14, breaking the 80% barrier for the first time since record-keeping began in 1999 www.sdi.co.uk

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