The Hotel Property Handbook - Deloitte

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Hotspots accounted for the 52% of the total visitors. ▻ Andalusia's vacational hotspot 2017 (Jan-Oct) figures register
The Hotel Property Handbook Investment & Financing Keys Andalusia Snapshot

December 2017

Financial Advisory I Real Estate - Hospitality @ 2016 Deloite Financial Advisory

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Javier García-Mateo, MRICS Partner Financial Advisory ‖ Real Estate [email protected] Mob: +34 659 90 02 15

Jose María Espejo Senior Manager Financial Advisory ‖ Real Estate [email protected] Phone: +34 918 232 692

Fernando Baldellou Partner Head of Financial Advisory – Hospitality [email protected] Phone: +34 914 432 514

Leopoldo Parias

The Hotel Property Handbook Andalusia Snapshot @ 2016 Deloite Financial Advisory

Partner Financial Advisory [email protected] Mob: +34 629894186

Jordi Schoenenberger Partner Hospitality Industry Leader [email protected] Phone: +34 932 543 932 2

The Hotel Property Handbook Andalusia Snapshot

EXECUTIVE SUMMARY

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► Andalusia is one Top 5 ranked destination in Spain;

2016 was a landmark year in terms of visitors accounting for c.18m visitors, +7% growth compared 2015. 2017 (JanOct) data suggests a potential deceleration with a modest growth of 2% for the same period in 2016. Vacational Hotspots accounted for the 52% of the total visitors.

Supply & Demand

► Andalusia’s vacational hotspot 2017 (Jan-Oct) figures registered an Average Stay of 3.8 days and 33m overnight stays. Vacational destinations are affected by a significant seasonality, with almost 80% of the hotel supply closed during low season months. ► During 2017, 10 new hotels have opened with c.800 rooms, while 3 Hotels have been refurbished accounting for +1,072 rooms.

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► Andalusia’s Vacational destinations average RevPAR has grown +46% (2013-17) due to robust occupancy rate growth reaching 67% record breaking figure and ADR growth of +17%.

Market Overview Andalusia growth Key drivers

2016 vs 2017 ► Andalusian economy is expected to reach pre-crisis growth levels through mid-2018. Potential tourism deceleration could tailoff positive prospects.

► Andalusian provisional GDP growth for 2017 stands c.3% while a 2.6% growth is expected for 2018. Furthermore, Tourism GDP accounted for 13% of total GDP registering a 4% growth when compared with 2016 levels.

Tourism represented 12.5% of total Employment and achieved a 5% growth over 2016. Tourism employment amounted c.245k jobs during 2016, Malaga

► During 2017,

achieved the lions share with c.30% of the total tourism employment followed by Seville and Cadiz with 18.8% and 15.6% out of the total. @ 2016 Deloite Financial Advisory

► Andalusia’s Urban destinations average RevPAR has grown +55% (2013-17) boosted by occupancy rate growth reaching 72% and ADR upturns of +13%.

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Hotel Real Estate Investment Market

The EMEA region accounts for 27% of the total Hotel Real Estate Investment volume while Spain accounts for 12% In Spain, Hotel Investment volume increased by 27% in 2017YTD (€2,717m) and accounted for 31% of total nonresidential investment

Malaga Province registered 100% of the total Andalusian investment market figure of €320m (2017), representing a 12% share out of the total Spanish hotel investment volume. Sevilla & Malaga strong capital value (€k/room) growth of c.12.4% has been driven by the solid Tourism Strategy Plans implemented by each City Town Hall.

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4 ►

Key Investment and Financing Drivers

High Liquidity for both Equity and Lending due to the improvement of KPIs throughout Spain.



Increasing financing demand for prime development projects, including refurbishment, repositioning and greenfield



Location, category, performance and hotel brand significantly impact on financing terms.

Key Factors

Full Due Diligence required to perform the optimal deal analysis:

► Financial Factors: Understanding of GOP vs. NOP.

► Business Performance: Analysis of market and income sustainability.

► Legal Factors: Analysis of all intervenient

contracts. Comprehensive legal risk analysis.

► Tax Factors: Analysis of tax risks and potential tax structuring alternatives.

► Technical Factors: Functional use (Back of

House vs. Front of House), equipment condition, legal compliance and the hotel design (BREEAM + LEED certifications). 3

The Hotel Market: 10 Year Bond 2016-2017

458 bps 458 bps

▼ 43 bps ▼17 bps ▲ 50 bps

363 bps 388 bps 516 bps

▼17 bps

€800k

(8.1%) (13.9%)

€600k

(6.2%) (4.0%) 1.7%

6.6%

13.9% (3.7%) (1.1%) 7.9%

€400k

11.0% 10.4% 12.4%

9.2% 3.2% €200k

4* €600k

€200k

-

Max. Min (2006-16) Source: HSV London

2015

2016

hotel Category

Córdoba

Granada

Málaga

Sevilla

Europe

Madrid

Munich

Milan

Barcelona

Amsterdam

€100k

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Capital Value per room (2015-16)

0.5%

To take away:

repositioning and solid Tourism Strategy @ 2016 Deloite Financial Advisory Plans implemented by each City Town Hall.

▼17 bps

433 bps 388 bps 477 bps 538 bps

€400k

Malaga and Seville cities Capital Values (€/room) growth has been gaining momentum through 2015-2016. 2017 growth is expected break record breaking figures due to the strong effort on asset

▼ 34 bps

Capital Value per room Trend 2006-2016

Political and financial uncertainly in certain countries is favouring Spain

€800k

▼17 bps ▼17 bps

458 bps 458 bps

310 bps 547 bps 522 bps

Florence

Strength of the dollar (For American investors) and weakness of the Euro since 2014

▼17 bps

408 bps

▼65 bps ▼ 22 bps ▼ 22 bps ▲ 50 bps ▲ 50 bps

Rome

Returns expected in Spain through hotel investment are above the European average

1,67% 1,67% 1,67% 1,67%

▼4 bps

Geneva

1 2 3 4

Yielding Assets are more attractive than Investment Grade Bonds

0,92% 1,15% -0,22% -0,22% 2,12% 2,12% 0,34% 1,67% 2,12% 0,23% 1,67%

Zürich

Drivers increase in cross-border investments:

Capital Values Growth (%) 2015-2016

EXECUTIVE SUMMARY

Yield 2016 – Dif. 10 years bond

London

(1 March 2017)

Paris

The Hotel Property Handbook Andalusia Snapshot

Unitary Values Analysis (€/room)

Spanish Investment Market The Hotel Property Handbook Andalusia Snapshot

In 2017YTD the Hotel investment volume has exceed by 27% the investment volume of 2016. Hotel typology represents 31% of the total investment volume, while Andalusia represents the 12% share.

EXECUTIVE SUMMARY

Andalusia

€320m

Top 10 Spanish single asset transactions: # 1

Asset

Units

Ritz-C arlton Abama

Price (€m)

183 101 101 89 80 80 75 73 48 48

461

2 Hotel Villaitana

390

3 Jardin Tropical

390

4 Sol Príncipe

799

5 Hotel Silken

240

6 Hilton Diagonal Mar Barcelona (55%) 238 7

Ritz-C arlton Abama 50%

461

8 Sol Palmanova

653

9 Silken Puerta de América

315

10 AC Malaga Palacio

214

Hotels

Typology

Logistic

12,000

Vacational Vacational Vacational

Urban

674

Retail Shopping Centre

8,587 596

Offices

8,000

Vacational Vacational Vacational

Total Hotel investment volume in Spain as at 2017YTD: €2,717m A total pipeline investment volume of €800m is expected to be traded in Spain

5,313

6,000

4,000

2,000

-

150 1,460

1,467

8,845 1,143 1,993 571

1,263

4,470 2,242

3,189 279 1,056

3,151 2,087

644 750

591 687 576

88 544 571 365 519

2010

2011

2012

1,894

120 807 751

3,769

2,420

Hotel

2,297 2,702

867 607

932

2013

2014

2015

2,145

2016

2,717

31%

2017YTD

+27%

17%

@ 2016 Deloite Financial Advisory Short Term Medium Term Long Term

4,895

660

8%

75%

930

2,520

Urban

Source: Deloitte

Malaga region accounted for the 100% of hotel investment market

12,398

Retail High Street 10,000

Vacational Urban

11,845

Source: Deloitte Data Base and third party sources For more information see CHAPTER 3 (Investment Market)

100%

TOTAL

Source: Deloitte

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Andalusia Investment Market: The Hotel Property Handbook Andalusia Snapshot

EXECUTIVE SUMMARY European Yields & Capital Values (2016): City

Country

Paris London Zürich Geneva Rome Florence Amsterdam Barcelona Milan Munich C openhagen Madrid Europe

France UK Switzerland Switzerland Italy Italy Netherland Spain Italy Germany Denmark Spain

Capital Value (€k per room) €644k €601k €506k €440k €394k €375k €371k €327k €318k €297k €276k €268k €267k

Lease Yield 2016 5,00% 4,25% 5,25% 5,00% 5,75% 6,00% 5,50% 6,00% 6,00% 5,00% 6,00% 6,25% 6,00%

Source: Deloitte Data Base

For more information see CHAPTER 4 (Key Investment and Financing Drivers) in the full report.

European

Investment Market

3 Spanish transactions are included within the Top 10 European deals. Amounting to €987m, these Spanish transactions account for 30% of the Deloite Financial Advisory Top @ 202016 investment volume

2016-2017YTD

Andalusia accounted for €320m of hotel investment volume in 2017YTD, which has represented the 12% of the Spanish market. Investment appetite for coastal and urban Andalusian destinations is expected to peak during 2018. Year

Q

2017 2017 2016 2017 2017 2017 2017 2016 2016 2016 2016 2017 2016 2016 2017 2016 2016 2016

2016 2016 2016 2016 2017 2017 2017 2017

Rooms

Price (€)

Málaga 4* Málaga 4* Málaga 5GL Málaga 4* Málaga 4* Málaga 4* Málaga 5* Almería 4* Málaga 4* Cádiz 4* Málaga 5* Málaga 5* Málaga Apt. 2* Málaga 4* Málaga 4* Málaga 4* Jerez 4* Huelva 2*

799 214 144 133 524 850 106 335 250 228 197 138 46 309 398 136 98 75

88,900,000* 64,900,000* 60,000,000 41,000,000 40,000,000 32,000,000 26,700,000 24,560,000* 22,850,000* 20,840,000* 20,000,000 13,480,000* 13,408,000 13,100,000 12,600,000* 9,970,000* 8,960,000* 2,300,000*

111,264* 223,832 416,667 308,271 76,336 37,647 251,887 73,313 91,400 91,404 101,523 97,681 291,478 42,395 31,658 73,309 91,429 30,667

Starmel HI Partners Lord Sugar NH Hotel Group n.d. Neinor Homes Dos Puntos Merlin Properties Merlin Properties Merlin Properties Grupo JALE Acciona n.d. Hoteles C Blue Sea Merlin Properties Merlin Properties Gestión Lepemar

London & Regional Prop. Blackstone Ayco Hispania - SOCIMI Logitravel HIG Internos Global Investors Foncière des Régions Foncière des Régions Foncière des Régions HI Partners n.d. Quartiers Properties Palia Hotels Portobello Foncière des Régions Foncière des Régions Seville Private investor

Granada Sevilla Almeria Cádiz Valencia Alicante Alicante Almería

34 40 505 165 192 126 90 131

undisclosed undisclosed undisclosed undisclosed undisclosed undisclosed undisclosed undisclosed

n.d. n.d. n.d. n.d. n.d. n.d. n.d. n.d.

Fontecruz Hoteles Fontecruz Hoteles Hoteles Hesperia BBVA Renting Sareb n.d. n.d. n.d.

Eurostars Hotel Company Eurostars Hotel Company Best Hotels Hotusa Senator Hotels & Resorts Port Hotels Port Hotels Senator Hotels & Resorts

Asset

Province

3Q 4Q 3Q 1Q 3Q 1Q 3Q 4Q 4Q 4Q 2Q 1Q 4Q 2Q 1Q 4Q 4Q 2Q

Sol Príncipe Portfolio Halley Málaga (2 assets) Byblos NH Málaga Pueblo Camino Real Valle Romano 430 Tourism Apt. Vincci Selección Posada del Patio Playacapricho Hotel Costa Park Barcelo Costa Ballena Golf & Spa Incosol Vincci Selección Estrella del Mar Centro Forestal Sueco Las Palomas Gran Cervantes by Blue Sea Tryp Alameda Tryp Jerez Marlin Hotel Antilla Playa

2Q 2Q 2Q 3Q 3Q 3Q 3Q 4Q

Eurostars Gran Vía Eurostars Sevilla Boutique Best Sabinal Monasterio de San Miguel Parque Central de Valencia Holiday Inn San Juan Beach Holiday Inn Elche Hotel Suites Puerto Marina

* Estimated Value

*

5* 4* 4* 4* 4* 4* 4* 4*

Source: Deloitte Data Base and third party sources For more information see CHAPTER 3 (Investment Market)

€/room

Vendor

Buyer

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Vacational Hotspots performance Andalusia’s Vacational Hotspots RevPar increased by 49% on average from 2013 to 2017 YTD (oct 2017).

The Hotel Property Handbook Andalusia Snapshot

SPAIN’S GDP grew by 3.2% during 2016. Tourism accounts for 11.3% of Spain’s GDP

RECORD FIGURES 2016 75.6 million tourists came to Spain in 2016 spending €77.6k million

GROWTH

TOURISM COMPETITIVENESS Spanish Tourism industry acknowledged as the world’s most competitive EMPLOYMENT Tourism-related employments accounts for 12% of Spain’s employments

Andalusia

GEOPOLITICAL CONTEXT The Spanish Tourism Industry is benefiting from the current geopolitical CONSUMER context CONFIDENCE CCI has experienced an Uptrend since 2012 and is close to max. levels BUSINESS CONFIDENCE Tourism Business Confidence close to max. levels since 2016 BREXIT In contrast to previous estimates, 12% more UK tourists came to Spain during 2016

vacational destinations

current supply is in general terms obsolete and outdated.

To Take Away:

Both refurbishment and repositioning would be the key drivers of revenue increases in 2018. @ 2016 Deloite Financial Advisory

RevPar (€) Evolution by hotspot (2013=100)

EXECUTIVE SUMMARY

VACATIONAL Main vacational hotspots 165 160 155 150 145 140 135 130 125 120 115 110 105 100 100 95 2013

Andalusia vacational Hotspots

166

165 158 155

124

111 106110 105

119 117 115

137 137 130 126 124

149 146 142 140

150

148

145 138

136 135

135

129

123

125

127

123 118

115

113

121 114

113 111 108 107

105 100

105 95 2014

2015

2016

2017 (Jan-Oct)

2013

Catalonia Balearic Islands Avrg. Vacational dest.

Andalusía Community of Valencia Canary Islands

2014

2015

Costa de Almería Costa de la Luz de Huelva Costa Tropical

2016

2017 (Jan-

Oct) Costa de la Luz de Cádiz Costa del Sol

KPI’s evolution (2013 to 2017YTD)

ADR

+

Occupancy

=

RevPar

SPAIN - Vacational

+27%

+785bps

+41%

Andalusia  Vacational Destinations

+17%

+1,323bps

+49%

For more information see CHAPTER 2 (Supply and Demand)

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Urban Hotspots performance Andalusia’s Urban hotspots RevPar increased by 55% on average from 2013 to 2017 YTD (oct 2017).

The Hotel Property Handbook Andalusia Snapshot

“The Experience Revolution” Expectations survey

by Deloitte

2017 expectations Market evolution by segment Business 3%

Leisure 3%

62%

35%

67%

Much better than 2016

Similar to 2016

Better than 2016

Worse than 2016

28%

2%

Much worse than 2016

Andalusia’s urban destinations gaining momentum thanks to the solid Tourism Strategies and Suitability plans that are being implemented by the key cities Tow Halls.

To Take Away:

Strong Marketing strategies and loyalty programs are becoming 2016 Deloite Financial Advisory key@revenue drivers.

RevPar (€) Evolution by hotspot (2013=100)

EXECUTIVE SUMMARY

Urban Main urban hotspots 170 165 160 155 150 145 140 135 130 125 120 115 110 105 100 100 95 2013

Andalusia Urban Hotspots 154

150 145 133

138

129

125 125

111

118 114 114

120

108 104 101 2014

Madrid Bilbao Avrg. Urban destinations (Spain)

2015

2016

Barcelona Valencia

2017 (Jan-Oct)

170 165 160 155 150 145 140 135 130 125 120 115 110 105 100 100 95

166 168

147

144

141 139

132

130 130

128

121

119

116

111

106 105

2013

2014

2015

2016

Sevilla

Granada

Malaga

Córdoba

2017 (Jan-Oct)

Avrg. Urban destinations (Spain)

KPI’s evolution (2013 to 2017YTD)

ADR

+

Occupancy

=

RevPar

SPAIN - Urban

+20%

+1,392bps

+49%

Andalusia  Urban Destinations

+13%

+1,227bps

+55%

For more information see CHAPTER 2 (Supply and Demand)

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Spanish hotel new openings The Hotel Property Handbook Andalusia Snapshot

Significant hotel openings during 2017YTD

(Dec. 2017)

Andalusia

EXECUTIVE SUMMARY

Figures

Hotel openings trend (2010-17 YTD) (number of hotels and rooms)

2017 YTD openings by type of project:

New Openings

10 Hotels c.818 Rooms

Refurbishment

3 Hotels 1,072 Rooms

200

Spain

Andalusia

180

Chain/Brand Conversion

31 Hotels 3,840 Rooms

Ongoing Projects

2 Hotels 184 Rooms

12000

10000

160

Ongoing projects 11% New openings 20%

Ongoing projects 4% New openings 22%

140

6.907 120

5.396

100

Chain/Brand Conversion 51%

Refurbishment 18%

8000

5.745

Refurbishment 7%

5.697

5.120

4.973

6000

80

Chain/Brand Conversion 67%

3.124

60

4000

2.825

40

2000

20

Source: Censo Alimarket Hoteles (2017YTD – Dic. 2017)

82

62

68

57

56

34

54

50

-

The main chains’ priorities

0

2010

2011

are asset renovation, brand repositioning, innovation and sustainability in order to overcome

seasonality and foster client loyalty. @ 2016 Deloite Financial Advisory

2012

2013 New Hotels

Source: Censo Alimarket Hoteles

For more information see CHAPTER 2 (Supply and Demand)

2014

2015

2016

2017 YTD

# rooms

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Financing Market

The Hotel Property Handbook Andalusia Snapshot

Yielding assets: Increasing lending demand due to the outstanding tourism industry performance

2013-14

EXECUTIVE SUMMARY MAIN DRIVERS FOR THE INCREASING LENDING DEMAND MACROECONOMIC ENVIRONMENT  Improvement of fundamentals  Monetary Policy: QE, low funding costs, etc. FINANCIAL SECTOR  Restructuring of the Financial Sector  P&L reconstruction REAL ESTATE INVESTMENT MARKET  Excess of Liquidity: Increase in transactions  Entry of new sponsors  Alternative to the fixed income / bond yields

Main Conditions

Framework

Main Players

Traditional lenders are coming back

Senior Debt:

 Yielding assets: gathering momentum @ 2016 Deloite Financial Advisory

2016

2017YTD

Credit Access Constraints

Financing Upturn

Institutional Investors / Debt Funds

Banking / Insurance Companies

Upfront Fee

150-250bps

125-175bps

100-150bps

90-135bps

Spread

225-400bps

200-250bps

175-225bps

150-225bps

LTV

(1)

Balloon

 Development loans:

2015

(2)

45-50%

45-55%

50-60%

50-65%

60-80%

65-100%

70-100%

70-100%

(1) Sustainable LTV to deal with the debt service with high funding costs (A higher LTV will result in a greater debt service) (2) A Balloon is required to cover the high funding costs during the loan´s life (a lower balloon will result in a greater annual debt service). Estimated balloon for a 5-7 years loan.

Location, category, performance, type of operating contract (and mandatory period duration) and hotel brand significantly affect financing terms. Source: Deloitte For more information see CHAPTER 4 (Key Investment and Financing Drivers)

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Main Players:

The Hotel Property Handbook Andalusia Snapshot

Equity

Main Chains

EXECUTIVE SUMMARY THE CORE PROFILE STILL DOMINATES THE MARKET:

2017

2016

More than 10,000 rooms in Spain

Value Added 4%

Value Added Core+ 10% 11%

Core+ 29%

Core 67%

NPLs portfolios

Core 79%

1,702 234 209

Source: Deloitte

Miguel Sanchez Hoteles

€m

€m Core Core+ Value Added

Local Players

Core Core+ Value Added

1,822 790 105

Debt

The Most active players are expected

to stay active in 2018: @ 2016 Deloite Financial Advisory

Source: Deloitte For more information see CHAPTER 4 (Key Investment and Financing Drivers)

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The Hotel Property Handbook Andalusia Snapshot

WHAT IS

NEXT? @ 2016 Deloite Financial Advisory

12

Innovation The Hotel Property Handbook Andalusia Snapshot Sustainability

EXECUTIVE SUMMARY

Digital strategy

BREEAM & LEED

LEADING SUSTAINABILITY CERTIFICATIONS

Hotel Property

Customised experiences and LEED certifications are the most significant sustainability certifications worldwide. Both standards are regularly updated in line with the

Renovation

BREEAM

market.

@ 2016 Deloite Financial Advisory

Brand repositioning 13

The Hotel Property Handbook Andalusia Snapshot

Most significant value drivers for CEOs in 2017

EXECUTIVE SUMMARY #1 “Expectativas 2017

The Experience Revolution”

Income increase

Investment repositioning

#2

Operating margin improvement

#3

Talent and brand management

#4

Asset and capital efficiency

@ 2016 Deloite Financial Advisory

Select the two most significant drivers to improve capital and asset efficiency in 2017 35%

Optimise and invest in asset maintenance

33%

Systems investments

28%

Non-profitable asset sales

25%

Cash Management

23%

Funding sources renegotiation

17%

Accounts receivable and payable management

15%

Acquisitions

15%

Supplier and debtor management CapEx optimisation

7% 2%

14

Javier García-Mateo, MRICS Partner Financial Advisory ‖ Real Estate [email protected] Mob: +34 659 90 02 15

Jose María Espejo Senior Manager Financial Advisory ‖ Real Estate [email protected] Phone: +34 918 232 692

Fernando Baldellou Partner Head of Financial Advisory – Hospitality [email protected] Phone: +34 914 432 514

Leopoldo Parias

The Hotel Property Handbook Andalusia Snapshot @ 2016 Deloite Financial Advisory

Partner Financial Advisory [email protected] Mob: +34 629894186

Jordi Schoenenberger Partner Hospitality Industry Leader [email protected] Phone: +34 932 543 932 15

@ 2016 Deloite Financial Advisory

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