Economy and hotel market

Hotels Snapshot EDITION 1 | 2013 Accelerating success.

1.

Economy and hotel market Contacts

Economy | UK UK AGENCY Julian Troup +44 7825 891233 [email protected]

UK VALUATION David Hossack +44 7919 015899 [email protected]

ADVISORY AND CONSULTANCY Marc Finney +44 7825 602797 [email protected]

www.colliers.com/uk/hotels

The UK economy has barely grown over the past two years as it has laboured against the consequences of the financial crisis and its impact on global demand, a sharp squeeze in domestic spending power and a necessary fiscal consolidation. The period of weak demand has been accompanied by stagnant productivity, raising questions about the extent to which the supply capacity of the economy has expanded. Increases in energy and other import prices and in VAT have meant that CPI inflation has been well above its 2% target for much of this period. The Consumer Prices Index (CPI) annual inflation stood at 2.7% in December 2012, static for the third month in a row. At a more detailed level there were both upward and downward pressures: the main upward pressure came from increases in energy prices, but these were offset by downward pressures on air fares with prices rising at a far lower rate than a year ago. The CPI stood at 125.0 in December 2012 based on the CPI of 100 in 2005.

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The Retail Prices Index (RPI) annual inflation stood at 3.1% in December 2012, up from 3.0% in November. Energy prices were the principal factor in the slight rise. The RPI stands at 246.8 in December 2012 based on the RPI of 100 in January 1987. The general economic picture continues to be mixed. GDP grew by 0.9% in Q3, although that strength was exaggerated by temporary factors. Initial estimates published on 25 January 2013 suggest GDP shrank back in Q4 to -0.3% prompting talk of an unprecedented triple dip recession. The future path of GDP will depend critically on developments in the global environment, with strains in the euro area posing the greatest risk to a sustained recovery. The strength of any future recovery will also depend on the vigour of any revival in productivity growth. The likelihood that demand and supply capacity will continue to move together, as they appear to have done over the recent past, means that some of the sources of uncertainty affecting the outlook for GDP have limited implications for inflation in the medium term.

PAGE 2

Economy and hotel market

Provincial hotels 2012 was the second wettest year in the UK on record and affected the whole of the country. However, there were many positive events including the 2012 London Olympics and the Paralympics. Overall, although RevPAR increased by 1.4% from 2011, the market still ended with a decline of -1.9% in GOPPAR due to increasing costs. Occupancy increased by 0.6% with market demand from the corporate markets continuing to fall but being replaced by a stronger demand from the leisure sector, including the ‘staycation’ market. In early September the Tourist Board announced that VisitEngland will launch a £41m three year local marketing campaign called Growing Tourism Locally aimed at encouraging Britons to holiday at home. The impact of the Olympics appears to have been minimal within the provinces although host cities such as Cardiff, Coventry, Glasgow and Newcastle apparently experienced

a short period of growth in performance. Long-term, it is hoped that the success of the London Olympic and Paralympic Games will have a positive impact in attracting overseas visitors, however this may be more prominent in London than the provinces. In November the online website Trivago reported that UK hotel room prices had fallen by 15% year on year. Their statistics show that a one night stay in the UK cost an average of £111 in November, compared to £119 in October (a 7% decrease) and £130 in November 2011. The only location to show an increase for November was Cardiff which jumped by 8%; however, this is likely to be due to a number of high profile football and rugby matches at the Millennium Stadium. These findings illustrate the fact that operators are being forced to cut room prices to ensure reasonable levels of occupancy. This discounting is predominantly driven by online deals, with sites such as groupon.co.uk, wowcher.co.uk and laterooms. com advertising heavily reduced rates.

This is highlighted within the TRI HotStats which state that travel agent commission increased by 2.6% to £5.17 per room let basis which reflects 7.3% of rooms’ revenue.

London hotels With unpredictable fluctuations in performance throughout the year, seeing falls in profit in June (Jubilee), July and November (pre and post Olympics), though with an Olympicsled 90% improvement in August, the full year results show another significant overall increase in profit growth based on TRI’s survey. Indeed, for the rolling year a marginal fall in occupancy was counteracted by an improvement to ARR to realise a 3.4% growth in RevPAR, which finished at £112.40. TrevPAR and GOPPAR also experienced growth at 3.8% and 4.9% respectively when compared with the prior year, again evidence that the London market goes from strength to strength.

UK CHAIN HOTELS PERFORMANCE REPORT (12 MONTH PERIOD ENDING DECEMBER 2012) THE CALENDAR YEAR TO DECEMBER 2012

MOVEMENT FOR THE CALENDAR YEAR

THE CALENDAR YEAR TO DECEMBER 2011

London

Provincial

Occ %

81.1

70.3

ARR £

138.5

RevPar £

112.4

London

Provincial

Occ %

-0.2

0.6

69.4

ARR %

3.7

0.5

108.

48.4

RevPar %

3.4

1.4

London

Provincial

Occ %

81.4

69.7

69.7

ARR £

133.5

49.1

RevPar £

TrevPar £

154.1

93.5

TrevPar £

148.5

92.7

TrevPar %

3.8

0.9

Payroll %

23.5

32.4

Payroll %

23.7

32.2

Payroll %

0.2

-0.2

GOP PAR £

75.3

26.6

GOP PAR £

71.7

27.1

GOP PAR

4.9

-1.9 Source: TRI Hospitality Consulting

www.colliers.com/uk/hotels

COLLIERS INTERNATIONAL | HOTELS SNAPSHOT

PAGE 3

Economy and hotel market

FOR SALE

WATERMILL HOTEL | PAISLEY Prominently located 49 bedroom town centre commercial hotel with a good range of food & beverage, bar and function facilities with t/o c.£1.1m (net).

OFFERS AROUND £900,000

To accompany their findings TRI stated in their latest report: “Despite the last few years being one of the toughest trading periods in recent history, hotels in London have recorded yet another year of profit growth on the back of increases in 2010 (+13.9%) and 2011 (+4.7%). For London hoteliers it has been a breathless charge through 2012 and it now seems like a lifetime ago that the industry was discussing how bad the Olympic Games may be for business. How different our perspective is now, as, taking nothing away from the ability of London’s hotel managers, the Olympics are the saviour of the year and we will take only positive memories away from 2012.”

More consolidation expected for 3 and 4 star hotels

Edinburgh’s boom in budget hotels ‘must be slowed’

Diamond Jubilee takes sparkle off hotel rates in London

Edinburgh’s budget hotels boom must be slowed to stop Scotland’s Capital’s hotel market becoming unbalanced, a report has warned. The number of rooms in “limited service” hotels in the city, such as the Easyhotel on Princes Street, has rocketed from 890 to 2,700 in the past seven years, while traditional hotels have seen much more modest growth. The report said in the peak summer period Edinburgh now had a total of around 27,000 rooms available for tourists – an increase of almost 6,500 since 2005.

www.colliers.com/uk/hotels

COLLIERS INTERNATIONAL | HOTELS SNAPSHOT

UK hotels are expected to experience further consolidation in the 3 and 4 star sector, with a change of ownership of some groups on the horizon, according to global hotel consultation business, HVS. “Several hotel groups have now got a for sale notice on them, and more are likely to in the near future,” said Russell Kett, chairman of HVS. “The banks are now confident enough in the market to consider a sale likely, and are putting groups on the market that other operators and investors are likely to look at.”

London room rates fell for the first time in 32 months in June, as business travellers stayed away from the Capital. HotStats UK Chain Hotels Market Review revealed hotels in London recorded “by far the worst performance of 2012”. The report blamed “the extended holiday for the Queen’s Diamond Jubilee and governmental warnings around transport and fears over accommodation pricing before and during the Olympics”, which led to a “detrimental decline in business visitors”.

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Economy and hotel market

VALUATION

Hotel insolvencies down Hotel and leisure companies are performing better, with business closures down. Figures show UK hotel and leisure insolvencies were down 18.7% in August 2012, compared with a year previously, according to figures from Experian. ARDEN HOTEL | BIRMINGHAM

The reduction is set against a largely unchanging number of overall business failures.

216 key mid-market hotel with extensive conference and events rooms and leisure club valued for loan security purposes.

Slotting to depress values

RENT REVIEW

Greater regulation of property lending could lead to a downward spiral as banks restrict loans. The likely effects of ‘slotting’, an upcoming banking practice, will be reduced lending, forced sales and reduced values, reports IPD. Slotting will require banks to mark properties in one of five risk categories, and hold additional capital against the risk. The set-up could discourage low risk lending, because of excessive capital holding requirements.

VisitBritain forecasts 3% visitor rise

PREMIER INN NORTH TOWER | MANCHESTER

VisitBritain has forecast that the volume of international tourism to Britain will grow by 3% in 2013, meaning almost one million extra visitors will come to the UK. Their spend is forecast to reach £19bn for the first time, representing growth of 2.5%.

Undertaken rent review and service charge stabilisation.

www.colliers.com/uk/hotels

COLLIERS INTERNATIONAL | HOTELS SNAPSHOT

Chairman of VisitBritain, Christopher Rodrigues, said: “2012 has shown just what Britain can offer. It has reenergised our image overseas and triggered the desire to visit our country. Our job now is to turn aspiration into action.”

Investors optimistic Property investors are looking to be net buyers of hotels during 2013. European cities are the favourite destinations for funds. Julian Troup, Head of UK Agency at Colliers International commented: “Confidence will play an enormous part in determining where the UK hotel sector goes during 2013. Consumer confidence and disposable income are key to trading success, whilst buyer and seller sentiment will greatly affect the flow of hotel transactional activity. In recent years there has been a sluggishness and reticence in terms of decisions being taken to sell hotels in the UK. However, now there is a general feel that there will be an increase in activity throughout 2013, where owners have waited long enough in holding back their plans to sell due to ‘director fatigue’ setting in. Although many of the banks continue to have a watching brief over their hotel ‘book’ there are some positive signs of them taking a more confident stance to lending. We are not anticipating a rush to the market resulting in an over-supply of UK hotels, but we do believe there will be an increase in the number of ‘under the counter’ opportunities where hotel owners are prepared to consider a sale on a confidential basis, which appeals to certain property investors.”

PAGE 5

Economy and hotel market

FOR SALE

FOR SALE He said a downturn in business was likely to occur because of the 10% increase in supply of accommodation – amounting to around 11,000 additional bedrooms – in the run up to London 2012, many of which are in the luxury sector. “Hotels will also feel the impact of the ongoing recession as well as suffer from the spotlight moving away from London to other destinations,” he said.

THE PRINCE REGENT AND RUSSELL HOTELS | WEYMOUTH

HARRISONS HOTEL | LONDON

Fabulous seafront location. With 165 bedrooms between them these two hotels are run with one management team and offer both 3 star and 2 star accommodation.

Boutique hotel overlooking the River Thames with bistro, bar and function room. 30 stylish en-suite letting bedrooms. Numerous tourist attractions nearby and good road and rail access to Central London.

£6.25M FREEHOLD

OFFERS AROUND £1.95M FREEHOLD

Tough times ahead following Olympic glow London hoteliers have been warned to prepare for a tough period of trading during 2013 as the warm glow of optimism created by the Olympic and Paralympic Games gradually fades. Gareth Banner, general manager of the Hempel Hotel in London’s Notting Hill, told a meeting organised by Boutique Hotel News to discuss business during the post-Olympic period that it would be prudent for hotels to prepare for budget decline next year.

www.colliers.com/uk/hotels

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Only 26 per cent of hotel sales in 2012 were ‘distressed’ transactions Just 26 per cent of hotel sales in 2012 were distressed transactions with the vast majority of deals involving new entrants to the market or expansion by existing hoteliers, according to research by Colliers International, Hotels. Julian Troup, Head of UK Agency at Colliers International said: “Despite these extremely challenging times, we’re encouraged by the increase in the number of new buyers who saw the opportunity to invest in the hotel market after taking a long-term view on an improvement in real estate and recognising the immediacy of trading gains under their ownership.” Our hotels research also revealed that an encouraging 34 per cent of buyers were new entrants to the hotel market. Most of the remaining purchasers were existing hoteliers growing their portfolios or selling one hotel to acquire another or corporate buyers or sellers where the buyer planned a change of use.

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Economy and hotel market

VALUATION Julian concludes:“Both buyer and seller sentiment was similar to the previous year, although the banks, who are major influencers in our market, showed signs of accelerating the sales process whilst their colleagues in credit, although remaining cautious, did take a more realistic view on lending particularly to proven operators and better quality businesses.” Despite the challenging trading conditions during 2012, our Hotels Agency team sold 96 hotels across the UK, setting us apart from the competition in terms of the volume of hotel transactional activity concluded during the period. RAMADA HOTEL | SOLIHULL

Pricing in the current market

Part Listed 145 key mid-market hotel situated in a thriving provincial location valued for loan security purposes during its recent acquisition.

During the boom period between 2002 and 2007 in the majority of cases a vendor was insistent on factoring “potential“ into the asking price and buyers and their advisors recognised the upside and valued this in the price that was paid. Although there are still some examples of premium asking prices being appropriate, this should now be driven by the quality of the asset, its prime location, the very obvious upside and the agents’ awareness of a special buyer who recognises the value of the asset to them. Unfortunately, there are still certain hotel agents who feel comfortable to advise an owner or influencer of a price that subsequently proves to have been grossly unrealistic – this action can be used as a means of securing an instruction, only to leave a vendor let down, or through the agent being out of touch with the current market.

www.colliers.com/uk/hotels

COLLIERS INTERNATIONAL | HOTELS SNAPSHOT

There will always be examples of a shortfall on asking prices being achieved particularly when, during a marketing campaign, the dynamics and trading position alters. However it is important not to unrealistically exaggerate asking prices as this can severely affect the eventual result. Pricing is key in the current world and needs to be justified by the agent. Julian Troup, of the Colliers International Hotels Agency team commented: “We are now in a very different world where an agent’s job has changed significantly in terms of the level of due diligence even they have to undertake in properly preparing for the marketing process. It is important for a seller to have their agent provide them with evidence of their suggested pricing based on their personal involvement in the market. Undertaking this practise goes a long way in managing an owner’s plans and expectations.” He continues: “Colliers International has sold over 300 hotels throughout the UK since the beginning of 2010. We have a diverse list of hotels sales and buyer profiles and an awareness of the regional variations – this enables us to substantiate a pricing structure our clients recognise, as do buyers, who can often turn away an agent known for “flying a kite“ in terms of the unrealistic prices they quote to help win them the instruction.” n

PAGE 7

2.

Corporate news

CitizenM opens first London hotel Fast-growing Dutch hotel chain, CitizenM, opened its first London site in Southwark. The hotel, on Lavington Street, includes 192 rooms and is the first of four sites planned to open in Central London in the next few years.

Hilton’s expansion Hilton Worldwide has opened its tenth Hampton hotel in the UK in the city of Birmingham. The 285 room Hampton by Hilton Birmingham is the largest Hampton branded hotel to open outside of the Americas. The hotel, which is operated by Sanguine Hospitality, is housed in a former derelict office building which cost a reported £30m to renovate. This is Hilton’s second property in Birmingham, alongside the 90 room Hampton by Hilton Birmingham/Star City. The 361 bedroom Hilton London Wembley opened its doors in time for the eight football matches being held at the nearby stadium during the London 2012 Olympics.

www.colliers.com/uk/hotels

Situated adjacent to Wembley Stadium and Wembley Arena, the hotel is well-placed for the host of sporting events and concerts that attract four million people every year.

SOLD BY COLLIERS INTERNATIONAL

The hotel offers a 660 seat ballroom, 10 meeting rooms, a business centre, LivingWell Health Club with a 12m pool, sauna and steam room and 24-hour gym. Its restaurant, the 280 cover “The Association”, will feature a modern British menu, while the Sky Bar 9, located on the ninth floor of the hotel with an outdoor roof terrace, enjoys views over Wembley Arena and Wembley Way.

Mercure reports halfway stage of global brand refurbishment Mecure – the midscale brand from Accor – is injecting new life into its portfolio of 725 hotels worldwide with a design that is delivered with a 40% reduction in cost, time and noise. The French-based company confirmed that nearly 50% of the brands’ rooms have been renovated or are in line with the Mercure vision, which allows some element of individuality

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BRYN HOWELL HOTEL | LLANGOLLAN Lovingly restored 19th Century country house hotel with 35 en-suite bedrooms, restaurant (100), ballroom (250) on approximately 5 acres of grounds.

PAGE 8

Corporate news

FOR SALE within a coherent design. Currently 10% to 15% (10,000 bedrooms) of hotels within the Mercure brand are being refurbished each year, with the full renovation programme expected to be completed within four to five years.

McKillen fails in Barclays appeal CEDARS HOTEL AND RESTAURANT | STOWMARKET 26 bedroom town hotel with busy restaurant, bar and flexible conference / banqueting suites. Consistently performing with solid profits. Retirement sale after almost 30 years.

PRICE £1.75M SHARE SALE TRANSACTION

FOR SALE

Irish property developer, Paddy McKillen, lost his High Court battle with the Barclay brothers over three of London’s most famous hotels. Judge David Richards rejected McKillen’s claims that steps taken by Sir David and Sir Frederick Barclay in their quest to take over Coroin – parent company of the Maybourne hotel group that includes Claridges, the Connaught and the Berkeley – were in breach of the company’s articles of association and shareholders’ agreement. McKillen had alleged unfairly prejudicial conduct of the affairs of the company and that there had been an unlawful conspiracy to cause him loss. However, the judge ruled in favour of the Barclay brothers and fellow defendants.

Chardon Management opens three hotels Independent hotel management company, Chardon Management, opened three hotels in three weeks. THE BARNS HOTEL | BEDFORD Excellent 49 bedroom hotel with extensive public areas and beautiful tithe barn ballroom.

OFFERS IN THE REGION OF £4.25M

www.colliers.com/uk/hotels

In a first for a Holiday Inn in the UK, the Southend Airport hotel, owned by the Stobart Group, features a rooftop bar and restaurant called 1935, the year the airport opened. Meanwhile, the new Holiday Inn Express Windsor is located just 10 minutes from the centre of the royal town, and Coniston Hotel has undergone an extensive refurbishment to regain its prominent position in the heart of the community.

Accor introduces eighth brand to UK with Pullman launch Accor is to launch its first Pullman branded hotel in the UK with the opening of the Pullman London St Pancras. The upscale four and five star Pullman brand will become the eighth Accor brand to be introduced to the UK, alongside Sofitel, MGallery, Novotel, Mercure, Ibis, Ibis Styles and Ibis Budget. The 312 bedroom hotel will open this month after the transformation of what was previously a Novotel property on Euston Road, close to King’s Cross, St Pancras and Euston stations. It features the 94 cover Golden Arrow restaurant and bar – named after the all first class Pullman train service between Paris and Calais in the 1920s – as well as 17 meeting rooms, including a 446 seat tiered theatre.

The company launched the 129 bedroom Holiday Inn at London Southend Airport, the 58 bedroom Holiday Inn Express in Windsor and the 80 bedroom Best Western Plus Coniston Hotel & Restaurant in Sittingbourne, Kent.

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PAGE 9

Corporate news

SOLD BY COLLIERS INTERNATIONAL

Travelodge creditors approve CVA Some 97% of Travelodge’s creditors voted in favour of the proposed company voluntary arrangement (CVA). Richard Fleming, UK head of restructuring at KPMG, and supervisor of the CVA, said: “The approval of the CVA also means that £709m of debt will be written off and new equity of £75m provided by the lenders.This will finance a £55m refurbishment programme across 175 of the business’s hotels, a move which will benefit customers and landlords alike.” The budget chain then restructured its debt, with a £75m injection of new equity into the business. In October the group agreed new financing terms with its three key investors, GoldenTree Asset Management, Avenue Capital Group and Goldman Sachs. Bank debt of £235m has been written off and £71m repaid, reducing total bank debt from £635m to £329m. The repayment date of the remaining debt has been extended to 2017 and cash pay interest reduced significantly to a rate of 0.25% above LIBOR through to the end of 2014.

Colliers International boosts Hotels team with new director hire Colliers International has appointed Paul Barrasford as a director in its London and South East Hotels team. Paul joins the company with 15 years’ experience following previous roles at Savills and Christie & Co. Julian Troup, Head of UK Hotels Agency at Colliers International, said:“Paul brings a wealth of hotels experience and will complement our 40-strong existing team well. Client demand is increasing in the South East and we see a real opportunity to expand our business in that area.” Colliers International has the largest wholly dedicated Hotels team in the UK, and, having sold more than 80 hotels during 2012 is one of the most successful.

BEST WESTERN CROWN | LYNDHURST 39 bedroom town centre hotel in the heart of the main town in the New Forest. All round trade centred on tourism to this ever popular area.

SOLD FROM AN ASKING PRICE OF £2.5M

FOR SALE

Paul Barrasford added: ”There are some superb opportunities in the current market and demand is particularly strong for hotels within striking distance of London. Colliers has brokered some major corporate instructions in recent times and this side of the business is set to grow further as the benefits of the company’s globalisation firmly takes root.”

At the time, Travelodge Chief Executive Grant Hearn, said: “The financial restructuring completed today will provide further stability to the business. It demonstrates our investors’ confidence in the company and I believe we have now secured the long-term future of the business.”

THE GEORGE HOTEL | HUDDERSFIELD Magnificent 60 bedroom hotel in a fantastic town centre location offered for sale on behalf of its receivers.

OFFERS ARE INVITED

www.colliers.com/uk/hotels

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PAGE 10

Corporate news

SOLD BY COLLIERS INTERNATIONAL

Motel One plans rapid entry into UK with launch of six hotels German budget hotel brand Motel One is set to make a rapid expansion into the UK market with the opening of six hotels. The group is targeting the UK as its second-most important market out of Germany and is seeking opportunities to acquire freehold or long leases on properties in major cities.

Gary Neville reveals plans to open hotels across the UK Former Manchester United player and football pundit Gary Neville hopes to open a string of hotels across the UK. In the opening session at the Annual Hotel Conference, held at Manchester’s Hilton Deansgate hotel, Neville told the 500 delegates that the 140 bedroom hotel he is developing close to Manchester United’s Old Trafford ground could be the first of many. “We’ve got to deliver a profit with the first one, but yes I do hope we can go on and open more across the country.”

Choice emerges from crash Choice Hotels has survived the Irish property crash and all its venues are making an operating profit, the company says. It was caught with inflated leases and indebted property developers as partners that owned the hotels when the bubble burst. Choice, whose assets include the Croydon Park, in London, continues to manage the hotels following a restructuring agreed with Ireland’s National Asset Management Agency.

www.colliers.com/uk/hotels

Menzies Hotels undergoes a brand refresh Independent group, Menzies Hotels, launched a new look for the brand, while investing about £7m in upgrading some of its 13 4 star properties. A new core ethos of “You’re in a good place” is to become prominent in the areas of breakfast, welcome and farewell, bedrooms, business services and leisure stays, while the brand logo, signage, brochures and website are being refreshed. The money being invested in the properties includes a £2.2m refurbishment at its flagship property, Menzies Welcombe hotel, spa & golf club in Stratford-upon-Avon; a £1.1m investment at both Bournemouth properties, the Menzies Carlton and East Cliff Court; as well as significant investment to the bedrooms at Menzies Prince Regent in Chigwell and Menzies Cambridge.

WYASTONE HOTEL | CHELTENHAM Stylish 16 bedroom B&B business making very strong profits within walking distance of this highly sought after spa town.

SOLD FOR CLOSE TO THE £1.8M ASKING PRICE

FOR SALE

Dhillon hotels in administration BDO was appointed administrator to four hotels from the Dhillon Group, including the 16th Century Crown Hotel in Amersham, Buckinghamshire. The others are Liongate Hotel in Kinston upon Thames, south west London, Olde Bell at Hurley, Berkshire, and Paragon Hotel, Birmingham. Stoke Place, a Buckinghamshire mansion, is unaffected. The Crown Hotel is famous as the location for the celebrated British film, Four Weddings and a Funeral.

QUALITY HOTEL | STOKE-ON-TRENT Substantial 136 bedroom hotel with extensive public areas and a newly refurbished restaurant.

GUIDE PRICE £4.5M

COLLIERS INTERNATIONAL | HOTELS SNAPSHOT

PAGE 11

Corporate news

FOR SALE

HARPENDEN HOUSE HOTEL | HARPENDEN Circa 75 letting bedrooms. Impressive public areas. Recently refurbished.

OFFERS IN THE REGION OF £6.5M

SOLD BY COLLIERS INTERNATIONAL

Donald Trump’s Aberdeenshire hotel plan to go ahead

Edinburgh’s Roxburghe hotel set to become Crowne Plaza

US tycoon, Donald Trump, performed a dramatic U-turn by announcing “one of Europe’s best hotels would go ahead next to his Aberdeenshire golf course” – despite previously saying no more investment would be made while plans for an 11 turbine wind farm were still being considered.

The Roxburghe in Edinburgh, currently operated by Macdonald Hotels & Resorts, is to be branded as a Crowne Plaza. Paragon Hotels, the owner of the 199 bedroom property on Charlotte Square, is to directly manage the hotel under a franchise agreement with the InterContinental Hotels Group. The hotel will be renamed the Crowne Plaza Edinburgh – The Roxburghe.

He had pledged he would not spend an extra penny on his £750m championship golf links at the Menie Estate while the offshore wind farm remained a possibility. But he said yesterday that he was now “ready” to create the best hotel Scotland had ever seen.

Maybourne refinanced Blackstone was confirmed as provider of a £525m loan to Maybourne luxury hotel group. Blackstone Real Estate Debt Strategies will arrange and partly participate in the funding, reported CoStar.

Malmaison to launch new hotel chain Hotel group, Malmaison, is to launch a new concept. The group, part of listed firm MWB, is on the hunt for sites for MalLife, a “young and stylish” new chain. Locations have already been identified in Bristol, Milton Keynes and Aberdeen, alongside two more potential sites within the M25. n

Blackstone was one of few funders prepared to support Maybourne, due to the dispute between shareholders, the Barclay brothers and Paddy McKillen. PARKES HOTEL | LONDON Well-known Knightsbridge hotel with 33 suites and letting rooms. This substantial lot was sold on behalf of a private client.

SOLD IN EXCESS OF £30M

www.colliers.com/uk/hotels

COLLIERS INTERNATIONAL | HOTELS SNAPSHOT

PAGE 12

3.

Transactional news SOLD BY COLLIERS INTERNATIONAL

Manchester hotel for sale at £50m Macdonald Hotels brought its 4 star Manchester Hotel & Spa to the market. The Scottish hotel company, led by Donald Macdonald, is seeking around £50m for the freehold 338 bedroom hotel. It is approaching a handful of potential buyers, including high net worth investors, and corporate operators. The deal includes an adjacent development site without planning consent.

ALVERTON MANOR | TRURO Confidential sale of this magnificent Grade II Listed hotel to a local consortium.

ASKING PRICE OF £3M

www.colliers.com/uk/hotels

Macdonald Hotels is one of the HBOS backed hotel groups Lloyds inherited after the banks merged. The group agreed a three year £340m refinancing in 2010.

More Von Essen hotels are sold Llangoed Hall – created by Sir Bernard Ashley and more recently briefly owned by the beleaguered Von Essen group – was sold for an undisclosed sum. The 23 bedroom property was bought by businessman, Roger Hancox, who confirmed his intention to continue the “at home” experience which was established by Sir Bernard in 1990.

COLLIERS INTERNATIONAL | HOTELS SNAPSHOT

Entrepreneur, James Caan, bought the two remaining Von Essen hotels, Ston Easton Park and Sharrow Bay, paying administrators £4.5m for the pair. The sale of von Essen Hotels’ 28 properties has realised less than half the £295m banks backed the group with.

L&R buys Crowne Plaza Cambridge hotel London & Regional bought the Crowne Plaza Cambridge hotel from administrators at Grant Thornton. The 198 bedroom hotel is thought to have been sold for in excess of its £35m asking price.

The Belfry goes to KSL Capital KSL Capital bought The Belfry, the Sutton Coldfield Ryder Cup venue, for an estimated £65m-£70m. The US private equity firm appointed De Vere Hotels to run the 550 acre golf course and resort and oversee an estimated £20m-£30m revamp under a 10-year management contract.

PAGE 13

Transactional news

SOLD BY COLLIERS INTERNATIONAL

VALUATION in The Wicker Man film, a world famous cult classic, and is therefore visited by film buffs from all over who search out such venues and sets.”

Great Victoria hotel in Bradford sold out of administration

THE JUDGES LODGINGS | YORK

TREFEDDIAN HOTEL | ABERDOVEY

Historic hotel with an outstanding city centre trading location sold to Daniel Thwaites on the instructions of Administrators, Begbies Traynor.

High quality, 59 bedroom sea front hotel which has been in the same family ownership for over 100 years. Valued for probate purposes.

The 70 bedroom Great Victoria hotel in Bradford was sold to the Gainford Group off an asking price of £2.1m after the original owner, Tomahawk Hotels, went into administration in 2010.

Waldorf Astoria opens in Edinburgh

Ascott, part of Singapore-based property group, CapitaLand, bought the Cavendish Hotel in Mayfair from the Barclay twins for £158.8m.

Hilton Worldwide has launched a new Waldorf Astoria hotel. After a £24m renovation and refurbishment, the 254 room Caledonian Hilton Edinburgh hotel has reopened as the 241 room Caledonian, A Waldorf Astoria Hotel. The hotel, which is more than 100 years old, has been operated by Hilton since 2000. It is the group’s second Waldorf Astoria property in the UK, alongside Syon Park in London.

‘Wicker Man’ hotel is sold for undisclosed sum

Redefine buys Earls Court hotel

The Ellangowan hotel in Dumfries & Galloway, which featured in the 1973 British film, The Wicker Man, was sold for an undisclosed sum. The 9 bedroom property portrayed the fictional Green Man Inn in the cult classic and featured in a number of famous scenes.

Redefine International has bought a 60% share in the ownership of a 150 bedroom Holiday Inn Express hotel in Earls Court, SW5. The hotel, which had formed part of the Splendid Hotel portfolio, comprising seven hotels is valued at £27m.

Cavendish sold to Ascott

Alistair Letham, a director at Colliers International, commented: “Whilst the Ellangowan hotel is your quintessential main street Scottish village hotel – the core of the community – it came to fame as being the film set for the bar of the Green Man Inn

www.colliers.com/uk/hotels

COLLIERS INTERNATIONAL | HOTELS SNAPSHOT

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Transactional news

SOLD BY COLLIERS INTERNATIONAL

FOR SALE

VALUATION

HOLIDAY INN | CORBY

BROWNSOVER HALL HOTEL | RUGBY

COPPID BEECH HOTEL | BRACKNELL

Purpose built well-known hotel with 105 well-appointed bedrooms operated as a Holiday Inn.

Magnificent Victorian gothic mansion hotel with 47 letting rooms within 7 acres of formal gardens and woodland.

Landmark 205 bedroom hotel designed in the style of an Alpine ski lodge. Valued in connection with the further development of the business.

OFFERS IN THE REGION OF £3.25M

Whitbread buys from rival

De Vere sells in Cambridge

Whitbread confirmed it had taken over “half a dozen” Travelodge development sites for its Premier Inn chain.

De Vere Group completed the sale of the University Arms hotel in Cambridge. The buyer of the 119 room hotel was Melford Capital. De Vere is reshaping its hotels business to concentrate solely on golf resort operations. Two non-core properties remain, the Grand Harbour in Southampton and Grand in Brighton.

The Times reported that Chief Executive, Andy Harrison, was in talks about buying “less than a handful” of operating Travelodges from landlords of the 109 hotels who are being asked to slash rents by 25% as part of its budget hotel rival’s restructuring.

Birmingham Hyatt rescued Hyatt Hotels Corporation (HHC) has bought the Hyatt Regency Birmingham out of administration in an estimated £27m deal. HHC already runs the property under a management contract.

www.colliers.com/uk/hotels

COLLIERS INTERNATIONAL | HOTELS SNAPSHOT

Zolfo checks out of Staybridge Zolfo Cooper has sold the Staybridge Suites Hotel in Newcastle to specialist hotel investor, Westmont Hospitality Group. The 128 bedroom property, which is located close to Newcastle’s Quayside, was sold off a £12.5m guide price. The “extended stay” hotel was the second of the Staybridge Suites to be opened in the UK. It comprises a mix of studios and 1 bedroom suites.

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Transactional news

FOR SALE

SOLD BY COLLIERS INTERNATIONAL

GREY STREET HOTEL | NEWCASTLE-UPON-TYNE

SWAN AT STREATLEY | BERKSHIRE

Newcastle hotel up for sale The Grey Street hotel in Newcastle city centre is up for sale after falling into administration. Colliers International is marketing the freehold of the 49 bedroom hotel for £3.75m on behalf of administrators at BDO. The hotel includes its own cellar bar and four meeting rooms for between two and 100 delegates.

A tale of two Radisson Blus in the UK The Radisson Blu Hotel, Glasgow, was purchased out of administration by Azure Properties for a reported £27.5m. The 247 room hotel had been in administration since November 2011. The hotel, which underwent a complete rooms renovation in 2011, will continue to operate under the existing management agreement with Rezidor Hotel Group as a Radisson Blu property.

Outstanding city centre boutique hotel and prime investment opportunity with 49 letting bedrooms and rental income from national bar and restaurant operator.

Wel-known hotel occupying a magnificent position on the River Thames at Streatley with 45 individually styled bedrooms, restaurant with stunning riverside views and superb conference and wedding facilities.

OFFERS IN THE REGION OF £3.75M

SOLD OFF AN ASKING PRICE OF £6M.

Also, the owner of the Radisson Blu Edwardian in Manchester, the Edwardian Group, has plans to expand the 263 room hotel. The group has purchased an old unused theatre adjacent to the property which has been used for many purposes over the years, such as a cinema, bingo hall and nightclub. The Edwardian group is to work with Manchester City Council and English Heritage to restore the building and incorporate it into the hotel.

The Swan hotel at Streatley sold to new hotel group headed by Hugh Osmond

www.colliers.com/uk/hotels

COLLIERS INTERNATIONAL | HOTELS SNAPSHOT

The Swan hotel at Streatley, near Reading, has been sold to a new hotel company headed up by pubs and pizza entrepreneur, Hugh Osmond.

The hotel was sold for an undisclosed sum off a guide price of £6m. Occupying a prominent position next to the River Thames, the Swan is a 45 bedroom 4 star hotel with extensive restaurant and conference facilities, a riverside bar and terrace, and a spa with mineral pool.

The new owner is Rare Bird Hotels, a new hotel group set up by Osmond, founder of Punch Taverns, who previously worked with Pizza Express. The group said it has ambitious plans for the Swan, including a comprehensive refurbishment.

Jonathan Wren, the director at Colliers International who advised on the deal, commented: “The marketing and sale of the Swan proved once again that despite all the talk of doom and gloom in the provincial hotel market, there are always buyers for quality businesses.”

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Transactional news

MANAGEMENT CONTRACT

New operators at Swansea’s 4 star Dragon Hotel London and Devonshire Trust, owners of the 4 star Dragon Hotel in the centre of Swansea, has appointed Macdonald Hotels to manage the property, after advice from Colliers International in the operator selection process.

DRAGON HOTEL | SWANSEA New management contract negotiated on behalf of owners, London & Devonshire Trust.

www.colliers.com/uk/hotels

Colliers International was also key in the negotiation of the heads of terms contract and continued to advise London and Devonshire Trust up to the signing of the contract.

At Colliers International, we do not take commission payments from management companies, this means our clients can be confident they are receiving impartial advice based on our experience in the market. We match the owner’s requirements with the right company and negotiate heads of terms on behalf of owners.” n

Mark Cleaver, a director in our Hotels department commented: “There are a myriad of management companies in the marketplace all vying for business. Choosing the right management company can significantly improve the trading performance (and therefore capital value). However, all too often, we have seen owners who are tied into contracts with companies, who, on the face of it appeared to offer the most favourable terms, whilst promising what turn out to be undeliverable increases in revenue and profit. It is therefore crucial that anyone considering the management contract route seeks professional advice from the outset.

COLLIERS INTERNATIONAL | HOTELS SNAPSHOT

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4.

Advisory and consultancy matters Popular opinion has it that there was no funding available for new hotel development at all in 2012 – particularly outside of London. Yet the reality and our experience give lie to this. 2012 was in fact a busy year for Colliers acting for developers within the hotel space in the UK. Not only did we see the opening of the magnificent hotel complex at St George’s Park but also several new projects got underway and a number of new projects are in the offing. The hotel business remains largely misunderstood by the investment community. Great yields are on offer but the certainty of income that the investment funds are used to is simply not there. Very few operators will put their covenant on the line with a firm FRI upward only lease and these operators tend to be at only the budget end of the market. A few more are starting to dip their toes into the lease market but mostly at such cautious levels that it is unlikely that projects can be made to work.

www.colliers.com/uk/hotels

Hybrid and variable leases are more common but the investment community has tended to shun these – leaving only specialist funds as a potential exit. The hotel business is inherently cyclical and it stands to reason that any form of fixed income lease will either be offering too rich a return in a downturn or not enough in the good times. HNWI’s small investment companies and family offices are less afraid and have started to take up some of the slack in the marketplace, accepting variable or low-covenant leases or even management contract arrangements in return for the significantly higher returns on offer. Developer’s are alert to this and 2012 was a strong year for our Development Consulting team who conducted many market and financial feasibility studies for new projects and then took this a stage further by helping those developers find the right operator on the right terms for the specific opportunity. This has seen the team working all over the UK from Edinburgh to Southampton via London and from Bristol Airport to the Lake district with stops in Birmingham, Reading, Manchester and Liverpool in between.

COLLIERS INTERNATIONAL | HOTELS SNAPSHOT

MARKET AND FINANCIAL FEASIBILITY STUDY

LAKE WINDERMERE | UK Feasibility study for a luxury boutique hotel in a prime location on the shore of Lake Windermere.

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Advisory and consultancy matters

BUSINESS PLAN UPDATE AND OPERATOR SEARCH

The difference between the projects which are getting funded and those which struggle tends to be a clear business plan, experienced sponsors and a market edge or differentiating factor – in other words the “no brainers”. Not that UK development was the only or even major focus of our business in 2012. Colliers International is a global company and this saw the Advisory team work on projects in many far flung places including most Western European countries but also as far West as Barbados and as far East as Chennai in India. Africa and sub-Saharan Africa in particular is a growing source of demand for our services and we have worked for clients in Sierra Leone, Ghana and Kenya.

ALGARVE | PORTUGAL Business plan update for a 150 hectare inland golf resort in the Algarve and operator search for the hotel and golf components.

www.colliers.com/uk/hotels

In conjunction with the Amsterdam office, the International team successfully fulfilled its mandate to secure additional capital for The Vincent Hotel Group’s (TVHG) expansion throughout The Netherlands through the arrangement of a credit instrument with equity participation provided by Metric Capital Partners and Hutton Collins Partners. The transaction closed in August 2012. This came after the successful negotiation of 19 leases of office space to be converted into hotels and the deal structuring between TVHG and the management company Interstate Hotels and Resorts in 2011. n

COLLIERS INTERNATIONAL | HOTELS SNAPSHOT

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1. . 5

Hotel Economy valuation and hotel market Hotel valuation – an art not a science David Hossack is a Chartered Valuation Surveyor with more than 21 years’ experience in the hotel sector. He heads up an experienced team of sector specific Chartered Surveyors who value more than £3 billion of hotel assets each year throughout the UK.

In times of great uncertainty it unnerves me that I am increasingly seeing the role of the experienced Chartered Valuation Surveyor gradually being replaced by teams of analysts and number crunchers, locked away in darkened rooms in front of rows of computers and somehow believing they can accurately predict the future trading performance of a hotel. Here the Discounted Cashflow (DCF) basis of valuation is king and scant regard is given to actual, proven trading results. The strange thing in all of this is that some clients insist on this approach, even despite bank lending practices favouring a methodology that considers a loan based on a multiple of actual, proven trading results.

www.colliers.com/uk/hotels

COLLIERS INTERNATIONAL | HOTELS SNAPSHOT

In recent months I have seen a number of cases where we have prepared valuations on mature hotel assets that were valued in the past by others who had adopted a slavish DCF approach based on 10 year trading projections. I say slavish because little, if any, regard seems to have been given to a direct capitalisation approach, even as a check, that applies a yield to actual, proven trading results. The strange thing here is that hotel transactions are usually, if not always, analysed by dividing the sale price by actual, proven EBITDA, not against a 10 year projection. “Value as you devalue” I hear my lecturers telling me all those years back.

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Hotel valuation

VALUATION

HOLIDAY INN | KENILWORTH Well-located 115 bedroom branded town hotel valued for loan security purposes.

VALUATION

Now I am not saying the DCF method should be outlawed, indeed it has its uses. What I am saying is that it should not be used in slavish isolation. After all, if it is used religiously as the only basis of valuation and is filled with incorrect EBITDA inputs and yields, unless the inputter has a grasp of the market from years of sector specific experience, and has the ability to accurately predict the future, there is a very great risk that valuations will be wrong. The solution? Always instruct a sector specialist and dedicated hotel valuer – one who is experienced in the valuation of hotels and one who works alongside a team of dedicated hotel specific agents who operate in the market on a day in day out basis. Ensure that your valuer adopts the same approach that a purchaser and vendor would, that they use common sense, stand back and consider whether the results of their toils actually equate to Market Value and remember, as my lecturers also told me, “valuation is an art, not a science.” n

These notes contain a summary only of certain aspects of the subject matter. They have been prepared for the purposes of the newsletter and are not a substitute for legal advice on specific facts. Great care has been taken in their preparation but no responsibility is accepted for any inaccuracies or omissions.

LA SUITE WEST | LONDON

March 2013 Colliers International is the licensed trading name of Colliers International Property Consultants Limited. Company registered in England & Wales no. 7996509.

Design led London boutique hotel, valued for loan security purposes.

www.colliers.com/uk/hotels

Registered office: 50 George Street, London, W1U 7GA

COLLIERS INTERNATIONAL | HOTELS SNAPSHOT H1 2013

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Colliers International Hotels Team

When it comes to hotels… we’re where you need us to be GLASGOW

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BELFAST n

LEEDS MANCHESTER

DUBLIN

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BIRMINGHAM

BRISTOL

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UXBRIDGE LONDON

PLYMOUTH

www.colliers.com/uk/hotels

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COLLIERS INTERNATIONAL | HOTELS SNAPSHOT

We are the third largest commercial real estate firm in the world with 522 offices in 62 countries Our strong regional representation enables us to provide local expertise in a global context In the UK, we have a team of 40 hotel agents, valuers and advisors in a business that was established in 1988 Since the beginning of 2010 we have sold or acquired in excess of 300 hotels in the UK We value over £3bn of hotel assets per annum We hold a database of over 20,000 hotel applicants, of which over 2,000 are actively looking to buy hotels We have a constant register of over 200 hotels for sale throughout the UK We provide research-backed advice

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