INVESTOR UPDATE - JUNE 2016
Contents Executive Summary Page 3 Market Performance Page 5 Operational Performance Page 6 Hotel Profitability Page 8 Hotel Budget: 2016/17 Page 10 02
Executive Summary ASSET PROFILE STAYBRIDGE SUITES BIRMINGHAM PROPERTY INFORMATION Number of rooms 179 Property Age 2 Years City Birmingham STR Chain Scale Upscale Restaurant - Bar - Meeting Space (sq.ft.) - Franchisor IHG Brand Staybridge Suite Hotel Manager InterState Asset Manager Hetherley Capital Partners Guest Service Scores (T12M) 87.0 Trip Advisor Ranking #3 of 139 Capex Budget 2016/17 1 ( 000s) 15.5 Capex Spend 2015/16 1 ( 000s) 27.0 COMPETITIVE SET UNITS YEAR OPEN Crowne Plaza Hotel Birmingham City Centre 312 1973 Jurys Inn Birmingham 445 1999 Hilton Garden Inn Birmingham Brindley Place 238 2001 Radisson Blu Hotel Birmingham 210 2005 StayCity Serviced Apartments Arcadian Centre 79 2006 Hotel La Tour 172 2012 Total 1,456 INDEX COMPARISON YEAR to MARCH 2014 1 2015 2016 Occupancy 62.3 94.9 102.9 ADR 93.9 94.3 98.5 RevPAR 58.5 89.5 101.4 1 Performance since opening (4 months to March) NEW SUPPLY UNITS EST. YEAR OPEN Bloc Apartments 31 2016 Holiday Inn Exp. Arena 250 2016 Radisson Blu Airport 223 2017 Innside by Melia 180 2018 Grand (independent) 152 2018 Total 836 03
Executive Summary The Birmingham hotel market has continued its positive performance trends, primarily driven by a strong increase in average daily room rate (ADR), with roomnight demand continuing to grow (albeit at a slower pace). STAYBRIDGE SUITES BIRMINGHAM - MARCH 2016 YTD PERFORMANCE ACTUAL BUDGET LAST YEAR Vs BUDGET Vs LAST YEAR Average Room Occupancy (%) 77.6 76.8 72.0 0.8 pts 5.6 pts Average Room Rate ( ) (ARR) 77.00 80.96 69.21-4.9% 11.3% Room Yield ( ) 59.75 62.17 49.80-3.9% 20.0% TrevPAR ( ) 60.47 62.53 50.20-3.3% 20.5% Total Revenue ( 000s) 3,961.9 4,096.7 3,279.7-3.3% 20.8% GOP ( 000s) 1903.2 2031.7 1425.0-6.3% 33.6% EBITDA ( 000s) 1,488.1 1,482.5 953.8 0.4% 56.0% EBITDA (%) 37.6 36.2 29.1 1.4 pts 8.5 pts In its second full year since opening, the Staybridge Suites Birmingham has outpaced both the market and its competitive set, experiencing significant revenue per available room (RevPAR) growth of + 20.0% YOY (12 months to March 2016), underpinned by the Hotel s strategy to attract extended-stay occupancy and take a more aggressive approach to retail pricing (ADR up 11.3% YOY). By deploying the aforementioned strategy and maintaining strict expense controls the Property was able to achieve a strong GOP and EBITDA conversion due to the cost efficiencies associated with the extended-stay business model (up 33.6% and 56.0% respectively YOY). Overall, the outlook for the Hotel remains positive. For the FY 2016/17 the Hotel is expected to outperform the competitive market as it continues to ramp up towards a stabilised trading position. The Hotel is budgeted to achieve an EBITDA of approximately 1.6M, equivalent to a 8.6% growth YOY. 04
Market Performance As previously stated the Birmingham hotel market has continued its positive performance trends, with the March trailing 12 month RevPAR performance for the wider Birmingham hotel market has grown by 9.6%, with annual occupancy increasing by 2.2pts to 74.3%, and average daily rate (ADR) up 7.2% (equivalent to 63.75). 20% 52 15% 47 10% 5% 42 0% 37-5% -10% 32-15% Jan 2009 Mar 2009 May 2009 Jul 2009 Sep 2009 Nov 2009 Jan 2010 Mar 2010 May 2010 Jul 2010 Sep 2010 Nov 2010 Jan 2011 Mar 2011 May 2011 Jul 2011 Sep 2011 Nov 2011 Jan 2012 Mar 2012 May 2012 Jul 2012 Sep 2012 Nov 2012 Jan 2013 Mar 2013 May 2013 Jul 2013 Sep 2013 Nov 2013 Jan 2014 Mar 2014 May 2014 Jul 2014 Sep 2014 Nov 2014 Jan 2015 Mar 2015 May 2015 Jul 2015 Sep 2015 Nov 2015 Jan 2016 Mar 2016 27 Occ % Chg ADR % Chg RevPAR The Birmingham market continues to benefit from multiple high-profile events that occur throughout the year, which drive significant compression within the city and enable hotels to charge premium room rates. The 2015/16 highlights include Crufts Dog Show, the Ashes at Edgbaston and the Rugby World Cup matches at Villa Park. The diverse range both of corporate and leisure-related demand drivers in Birmingham underpins the strength of the local hotel performance. Future hotel supply threat in the Birmingham market continues to be manageable, with the 108-room Adagio Aparthotel and the 172-room Staycity serviced apartments opening in the past 12 months without any noticeable impact. Based on the current supply pipeline, the next hotels of competitive relevance scheduled to open are the 31-room Bloc City Apartment and 250-room Holiday Inn Express Arena, both anticipated to open later in 2016. 05
Operational Performance The graph below details the monthly index trend at the Hotel, relative to its competitive set, for occupancy, ADR, and RevPAR. Over the past 12 months, the general RevPAR index trend has been positive, achieved through a combination of occupancy and ADR index growth. MONTHLY STR INDEX COMPARISON ROOMS REVENUE The Hotel continues to build its profile within the extended-stay market, allowing it to increase occupancy levels on shoulder nights and quieter demand periods due to its longer average length of stay (ie Monday to Friday). Furthermore, this has enabled the Hotel to boost transient midweek rates and further reduce utilisation of lower-rated demand segments (eg groups/tours). With the typical reduction in transient corporate business during the summer months, the Hotel benefited from having already secured the longer length of stay projects and accounts. This underpinned the Hotel s occupancy during the traditionally softer demand periods, such as August and January. In its second full year since opening, the Staybridge Suites Birmingham has outpaced both the market and its competitive set, experiencing significant RevPAR growth of+ 20.0% YOY (12 months to March 2016). Underpinned by the strategy to attract extended-stay occupancy and take a more aggressive approach to retail pricing, the Hotel increased ADR by 11.3% YOY, equivalent to a 7.79 uplift, albeit below our budgeted target for the Property (down 4.9%). Furthermore, by securing additional extended-stay business, the hotel has been able to increase occupancy over the weekends and shoulder nights. As a result, the Hotel annual room occupancy (ie volume of demand at the hotel) experienced growth YOY of 5.6pts to 77.6%, above budget expectations. The Property has utilised various promotions and packages, developed local partnerships, and launched an independent website in order to drive more direct bookings. 100 90 87.13 85.43 87.09 77.29 79.67 83.25 85.57 81.61 80.89 80 74.41 75.18 81.39 69.45 80.26 82.08 80.13 75.46 78.80 70 72.61 74.24 74.44 73.56 72.26 68.17 60 50 APR-15 MAY-15 JUN-15 AVERAGE ROOM RATE JUL-15 AUG-15 Actual SEP-15 Budget OCT-15 NOV-15 DEC-15 JAN-16 FEB-16 MAR-16 100% 90% 91.0% 85.1% 87.7% 83.6% 80.4% 85.1% 74.2% 75.1% 79.2% 79.6% 80% 73.2% 83.2% 73.1% 72.7% 80.5% 76.5% 80.4% 70% 77.2% 72.6% 68.7% 72.1% 71.9% 60% 68.4% 65.7% 50% APR-15 MAY-15 JUN-15 JUL-15 ROOM OCCUPANCY Actual AUG-15 SEP-15 Budget OCT-15 NOV-15 DEC-15 JAN-16 FEB-16 MAR-16 06
F&B, OTHER REVENUES, & GUEST SERVICE The Hotel is an extended-stay hotel product offering a select hot food breakfast buffet, a market-pantry and a complimentary evening reception held three times a week. The Staybridge Suites brand standard is for a breakfast only offer, though the Hotel is able to utilise its Den meeting room during the week in order to drive F&B revenues. For the 12 months to March 2016, F&B revenues were 24K, which is marginally up on budget and last year. Other income sales (comprising no show/cancellation charges, telephone revenues and vending machine sales), are up 21K on budget (12 months to March 2016). Overall, total revenues at the Hotel are up 20.8% YOY (FY 2015/16), but are slightly behind budget expectations (down 3.3%). The Hotel s brand Guest Service Scores have continued to be strong over the past 12 months. Furthermore, the Property s has remained one of the leading hotels in Birmingham for TripAdvisor, as well as receiving the Certificate of Excellence and multiple of awards throughout the year eg Trivago Top Hotel Award, Bookings.com Birmingham Guest Choice #1, and Expedia Select Award. CAPITAL EXPENDITURE For the full year 2015/16, capital expenditures were equivalent to approximately 27K. Given that the Hotel opened approximately two year s ago, the capex requirements to date have been relatively limited. The Hotel continues its rolling deep-clean programme, which includes all bedrooms, the restaurant/bar and front desk, in order to improve the overall guest experience. Furthermore, the Property deploys a robust preventative maintenance schedule, which not only enhances the guests stay but should reduce long-term capital expenditure. We continue to conduct a quarterly audit of bedrooms and hotel public areas to determine current and future capex/refurbishment requirements for all guest facilities and back of house areas with a particular focus on strategic capex projects that will drive profitability with a return on investment. 07
Hotel Profitability During the 12 months to March 2016, the Property has continued to drive expense efficiencies throughout the hotel operating departments. The combination of increased extended-stay demand, regular reviews of service/supply contracts and monthly benchmarking has helped reduce the cost base of the Hotel. OPERATING COSTS Direct expenses (related to departmental operations) are in line with budget expectations for the year (down 2K) in absolute terms as well as a cost per room sold basis. 2015/16 direct expenses also include an unexpected cost related to a 2014 commissions invoice. In contrast with industry trends, online travel agents (OTA) commissions experienced a decline of -0.6%YOY, equivalent to 6.1% of rooms revenue (-16.1% PRS vs budget). This has been attributed to the Hotel launching an independent website and the continued focus on direct sales, front-desk initiatives and utilising IHG brand promotions. 17,500 12,500 7,500 2,500-2,500-785 - 7,500-12,500 DIRECT EXPENSES ANALSIS (Variance to Budget) 11,269-1,045-6,890 8,857 2,701-3,747-5,463 3,129 646-8,132-2,443 Indirect costs (comprising management payroll, sales and marketing expenses and payroll, repairs and maintenance, franchise fees and utility bills) were slightly below budget expectations, equivalent to 4K. INDIRECT EXPENSES ANALSIS (Variance to Budget) 17,500 12,500 7,500 2,500-2,500-7,500-12,500 2,441 532-5,126-9,601 7,597-271 - 3,356-4,185 5,521 2,060-317 355 08
PROFITABILITY ANALYSIS For the 12 months through March 2016, the Hotel achieved a GOP of 1.9M, equivalent to a profitability conversion of 48.0% (percentage of total revenue). This represents a growth of approximately 472K on last year s performance, albeit down on budget. InterState Hotels & Resorts maintain the day-to-day responsibility for the hotel under our guidance. The terms of the management agreement provide for a base management fee and an incentive fee linked to the Hotel s profitability. In 2015/16, the combined management fee was 158K, in line with expectations. Fixed costs (non-operating expenses) are beneath the GOP line, comprising insurance, property rates, and rentals/leases, with total deductions equal to 258K which is 132K below budget expectations. The saving is primarily due to a reduction in property rates. By deploying the aforementioned strategy and maintaining strict expense controls the Property was able to achieve a strong EBITDA conversion due to the cost efficiencies associated with the extended-stay business model (up 56.0% YOY). 135,788 134,470 95,941 91,535 GROSS OPERATING PROFIT (ACTUAL VS. BUDGET) 98,096 158,955 60,973 113,379 133,831 171,758 94,036 126,238 GROSS OPERATING PROFIT (Actual vs.budget) 163,848 142,851 123,658 98,513 131,849 135,578 224,495 191,027 Actual 187,537 198,754 Budget 196,138 222,987 EBITDA (Actual vs.budget) 91,719 91,695 179,305 144,139 196,812 150,150 160,131 173,610 154,997 156,490 118,274 111,059 137,690 136,912 101,347 93,024 174,917 186,998 139,630 142,334 164,041 194,914 EBITDA (ACTUAL VS. BUDGET) 126,303 146,539 In absolute terms, the Hotel achieved an EBITDA profit of 1.5M in the 12 months to March 2016 (up YOY by approximately 535K). Actual Budget 09
Hotel Budget: 2016/17 Overall, the outlook for the Hotel remains positive. We are working closely with InterState to monitor the Birmingham market to ensure that the Hotel achieves the right balance between capturing the higher-yielding transient demand, and securing appropriate levels of extended-stay business to drive the expense efficiencies moving forward. STAYBRIDGE SUITES BIRMINGHAM - 2016/17 BUDGET 2016/17 BUDGET 2015/16 ACTUAL VARIANCE (+/=) Average Room Occupancy (%) 81.2 77.6 3.6 pts Average Room Rate ( ) 78.76 77.00 2.3% Room Yield ( ) 63.96 59.75 7.0% TrevPAR ( ) 64.70 60.47 7.0% Rooms Revenue ( 000s) 4,178.7 3,914.7 6.7% Food & Beverage Revenue ( 000s) 24.1 23.6 2.3% Other Revenue ( 000s) 24.4 23.7 3.3% Total Revenue ( 000s) 4,227.2 3,961.9 6.7% Gross Operating Income ( 000s) 3,093.8 2,897.5 6.8% Undistributed Expenses ( 000s) 1,057.3 994.3 6.3% GOP ( 000s) 2,036.5 1,903.2 7.0% EBITDA ( 000s) 1,615.9 1,488.1 8.6% EBITDA (%) 38.2 37.6 0.6 pts As the Hotel continues to ramp up its performance towards a stabilised trading position, we expect the Property to achieve significant growth YOY. The Hotel is projected to achieve approximately 4.2M in total revenue in 2016/17, which is up 6.7% on prior year results. The above table provides a summary of the approved budget for the Hotel for the period 1 April 2016 to 31 March 2017, with a comparison to prior year actual results. For the FY 2016/17 the Hotel is budgeted to achieve an EBITDA of approximately 1.6M, equivalent to a 8.6% growth YOY. 10
2016/17 MANAGEMENT TARGETS The last 12 months of operations at the Hotel have been positive. The Property has achieved significant YOY growth in 2015/16, and we expect performance trends to continue to improve. Management have been set specific targets to meet these objectives, including: Extended-Stay Occupancy Continue to target long-stay occupancy of between 40 to 50% of total roomnights and, therefore, maintain roomnight demand on shoulder nights, in particular Friday through Sunday. This should also drive operational efficiencies with reduced expenses (eg housekeeping, linen and guest supplies). Aggressive Yield Management Focus on improving retail pricing performance as well as shifting market segmentation in order to increase the underlying ADR of the hotel. Given the Hotel s independent website launched in 2015, there remains an opportunity to drive demand through direct booking channels and, therefore, reduce Online Travel Agents commissions. Strategic Utilisation of Group and Leisure Demand Tactically limit the proportion of lower-rated groups and leisure demand at the Hotel to Sundays, shoulder nights and identified need periods. Reduce the utilisation of third-party promotions (eg Groupon) that typically use a higher commission model, by collecting customer information with front desk initiatives in order to create packages that can be sold directly through the Hotel s website. IHG Heartbeat Scores and TripAdvisor Ranking Maintain the excellent IHG Heartbeat scores and TripAdvisor ranking as it has helped enhance the Hotel s standing in the Birmingham marketplace. The profile of the Hotel is strong within the local market. However we believe that there is further opportunity to drive profitability. We continue to work closely with InterState so that the Property can achieve the specific targets and objectives set for 2016/17. 11
STELLAR ASSET MANAGEMENT LIMITED Kendal House 1 Conduit Street, London W1S 2XA t 020 3195 3500 e info@stellar-am.com www.stellar-am.com Authorised and Regulated by the Financial Conduct Authority BIRM_001 18/07/16