Jones Lang La Salle

Opening the door to opportunityHotel Development & Construction

Latest trends, key players and unique aspects of the sector

Michelle WebbToby Wait

27 April 2010

opportunity

Today’s agenda – spotlight on…

• Brands of opportunity- Active players and new entrants

• Hotel operating structures

• Hotel development - London- General trends

• Questions

Key players, trends, and unique aspects of the sector

Brands of opportunityActive players in the marketplace

Brands of opportunityNew entrants / operators

Hotel operating structures – management contractSubdued investor appetite

• Owner owns property and hotel business• Owner pays manager a fee to operate the hotel on their behalf• Complex business structure

Sample summary hotel P&L

Room Count 180

Occupancy 74%

ADR £104.18

RevPAR £77.09

Total Revenue

000’s

£8,554

Departmental Expenses £3,220 37.6%

Undistributed Expenses £1,578 18.4%

Gross Operating Profit £3,756 43.9%

Base Fee (3% revenue) 257 3.0%

Incentive Fee 350 4.1%

Other Fixed Costs 624 7.3%

Net Cash Flow £2,525

29.5%

Management contract

Hotel operating structures – franchise contractActive franchisees

• Established hotel brands allow independent operators to use their brand and reservation systems

• Franchise fee paid to international hotel company

• Typically owner/operators – potentially more efficient

Sample summary hotel P&L

Room Count 180

Occupancy 74%

ADR £104.18

RevPAR £77.09

Total Revenue (Rooms, F&B, MOD)

000’s

£8,554

Departmental Expenses £3,220 37.6%

Undistributed Expenses £1,578 18.4%

Gross Operating Profit (AGOP) £3,756 43.9%

Base Fee (5% rooms revenue) 253 3.0%

Other Fixed Costs 624 7.3%

Net Cash Flow £2,878 33.6%

Franchise contract

Hotel operating structures – occupational leaseStrong investor interest in indexed link leases

• Owner / Landlord receives a rental income – fixed or variable

• Operator / Tenant receives remaining income from trading

• RPI / CPI or open market reviews

Source: Jones Lang LaSalle Hotels

Hotel operating structuresUK hotel investment market: deal type

0

1,000

2,000

3,000

4,000

5,000

6,000

2006 2007 2008 2009 2010f

Franchise

Management Contract

Lease (including S&L)

VP

Development trends – London v regions

-50,000

0

50,000

100,000

150,000

200,000

250,000

300,000

350,000

400,000

450,000

Budget Region Budget London 5 Star Region 5 Star London

£

Indicative gross development value per bedroom

Development trends – London v regions

-50,000

0

50,000

100,000

150,000

200,000

250,000

300,000

350,000

400,000

450,000

Budget Region Budget London 5 Star Region 5 Star London

£

Less build cost per bedroom

Development trends – London v regions

-50,000

0

50,000

100,000

150,000

200,000

250,000

300,000

350,000

400,000

450,000

Budget Region Budget London 5 Star Region 5 Star London

£

Less other development costs per bedroom = residual site value

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

Bed

room

s un

der

Con

stru

ctio

n

2007 2008 2009 2010

London Development Pipeline

Y - Opening inFollowing Year

Y - Opening inCurrent Year

Hotel development in London

Activity focused on leases / budget sector

Reduced development pipeline since 2007/08

Development trends – office conversions

0

5

10

15

20

25

30

35

2007 2008 2009 2010 2011 2012

Conversions New Build

(Forecast)

Office conversions

Travelodge, Tower Hill Premier Inn, Cardiff

Providing the expertise to know what to look for

Development trends – the requirement for sleepEfficient and effective use of space feeds the bottom line

Development trends – sustainabilityResponsible development achieves win-win status for all

Development trends – refurbishmentsA growth market?

In summary…

• Complex and unique properties

• Combine property and business investment principles

• Effectively ‘daily tenanted’

BUT

• Major opportunities exist in London

QuestionsQuestions