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Newsletter - February 13, 2002
VALUE INVESTORS, NOT VULTURES, WILL DOMINATE THE 2002 U.S. HOTEL
INVESTMENT MARKETS
According to Research by Jones Lang LaSalle Hotels
Jones Lang LaSalle Hotels compares today's U.S. hotel
investment market fundamentals with those of the early 1990s and reports
on the short-term transaction landscape, seller/buyer motivation and the
likelihood of a V-shaped economic recovery.
According to Jones Lang LaSalle Hotels, hotel buyers and sellers are
looking at the same economic data, yet they are drawing two very distinct
conclusions:
"Capital flows to real estate have been declining since their peak in
1998; however, they remain at high levels relative to historical
standards," said Alan Tantleff, Executive Vice President, of Jones
Lang LaSalle Hotels. "During 1990 to 1992, the market actually
experience outflows. The CMBS market was in its infancy and REITs were out
of favor at the time, so nothing was available to replace savings banks,
commercial banks and insurance companies who had begun big divestiture
programs."
Weak economic data in mid 2001 slowed transaction activity as both buyers
and lenders became more conservative in their underwriting criteria.
"As an industry, we appear to be in much better shape today than we
were in 1990, and while not a perfect parallel, 1990 was, in fact, the
United States' last recession," added Tantleff. "In 1990, we had
weak fundamentals – high inflation, weak GDP growth, declining profit
margins, and most importantly, negative outflows to real estate."
The hospitality industry has enjoyed record profitability during the past
few years. GOP has increased to record levels, placing the industry in a
better position than that of 1990 to withstand demand shocks. The weak
fundamentals in the early 1990s, combined with an exodus of capital,
pushed pricing to record lows. Additionally, analysts in 1990 predicted a
prolonged malaise. As a result, owners (primarily institutional owners)
were inclined to sell rather than wait for a market recovery. Today, the
consensus opinion of a deep V recovery is good news for sellers, with
buyers not necessarily seeing the deeply discounted pricing.
According to Melinda McKay, Senior Vice President-Research, we are well
ahead of historical measures and poised for a V-shaped recovery.
"Negative GDP didn't show up until Q3, and it is likely to remain
negative until Q3 next year, which equates to nine months. This is shorter
than the post World War II average recession period of 11 months, so we
are ahead of historical measures. These forecasts do take somewhat of an
optimistic view, although recent indicators, including the overall rise we
have seen on the stock market, do give weight to this V style
scenario."
To understand why institutions will not dispose of their hotel assets, one
must look at the NCREIF returns for a one, five and 10 year period by
product type. Until recently, hotels had outperformed other asset classes
by a wide margin over both a five-year and 10-year horizon. Institutions
and funds with hotel investments generally profited; therefore, it is
unlikely that they will abandon the asset class altogether.
"Funds with large exposure to retail, on the other hand, did not fare
quite as well. Therefore, funds are more likely to blame problems on
retail rather than hotels," added Tantleff.
In the 1990s, hotels were significantly outperformed by other asset
classes. That factor, combined with pressure from regulatory agencies,
generated a wave of divestment in the sector. Furthermore, a large
percentage of hotels today are owned by hotel companies (both public and
private), entrepreneurs and opportunity funds, less likely to "mark
to market" and sell, unless absolutely forced to do so.
In essence, Jones Lang LaSalle Hotels predicts a slowing of transactions
in 2002. Prices will not be at their peaks as income declines. Cap rates
may in fact decrease (at least when applied to trailing earnings) as
investors conclude that trailing earnings are not a valid barometer of
future performance, so capping historical income is not an accurate
indicator of value.
According to Tantleff, the market today can be characterized by one big
bid/ask problem. "Sellers and buyers both need to moderate their
expectations. When sellers gain confidence that a recovery is underway and
that prices may have bottomed out, they will return to the market and pay
market prices. Currently, investors are searching for distressed pricing
and opportunities greater than might actually exist."
Therefore, Jones Lang LaSalle Hotels does not predict a wave of distressed
sales in 2002, but rather an orderly transaction market, characterized by
a somewhat lower level of sales (by recent historic levels). Prices may be
below their peak, but will not be at extremely low pricing levels. As
economic signs become clearer, investors will return to the market with
rational pricing expectations. Owners will experience some pressure, but
with overwhelming demand relative to the supply of hotels and the absence
of panic selling, the market will be dominated by value investors, not
vultures.
SPOTLIGHTS ON HONG KONG’S TOURISM INDUSTRY
YEAR-END RESULTS
Boosted by another
strong fightback in December, total visitor arrivals in Hong Kong for 2001
reached a new record of 13,725,332, the Hong Kong Tourism Board (HKTB)
announced.
This represents 5.1% growth on the previous year, a performance that
seemed unthinkable in the immediate wake of the 11 September terrorist
attacks in the United States.
While some of Hong Kong's key source markets continued to show negative
growth in December, notably The Americas (down 10.3% compared with
December 2000) and North Asia (down 7.5%), these decreases were
significantly less marked than those of October and November. In addition,
arrivals from Mainland China maintained their recent buoyancy, increasing
a further 29.1%. Most encouraging of all, arrivals from South &
Southeast Asia returned to positive growth, rising 7.4%.
In total, December arrivals grew 6.4% to reach 1,305,185 the highest
number of visitors Hong Kong has ever received in a single month.
During 2001, 64.7% of all visitors stayed for one night or longer,
compared with 67.5% in 2000. The increasing proportion of same-day
visitors reflects in part Hong Kong's growing status as a leading regional
air transport hub.
Average hotel occupancy across all categories in 2001 was 79%. This
represents a slippage of four percentage points compared with 2000, but is
a considerably better result than had been expected four months ago. Top
grade (High Tariff A) hotels were the most badly affected by the declines
in business and long-haul visitors after 11 September, with occupancy
falling to 74% from 82% the previous year. High Tariff B and Medium Tariff
hotels, on the other hand, maintained average occupancy rates in excess of
80%.
December was a particularly encouraging month for the industry, with
Medium Tariff hotels showing occupancy of 89% and High Tariff B recording
88%. Hotels in the less central areas such as Mong Kok/Yau Ma Tei and the
Eastern part of Hong Kong Island did especially well, achieving
occupancies of 91% and 90% respectively.
”BIG
FIVE” AND PEGASUS FORM HOTEL DISTRIBUTION SYSTEM LLC
PR-Newswire - Five
hotel chains -- Hilton Hotels, Hyatt Corporation, Marriott International,
Six Continents Hotels and Starwood Hotels -- and Pegasus Solutions, the
world's leading provider of technology solutions for the lodging industry,
today announced the formation of Hotel Distribution System (HDS), LLC, a
new venture that will market hotel rooms over the Internet through
multiple online sites.
Utilizing
the technology leadership of Pegasus, HDS plans to provide the link to
allow Internet sites to sell hotel rooms via direct connections to hotel
reservation systems. Other features of HDS' state-of-the-art technology
will include real-time rate and inventory availability, rich hotel
content, and enhanced city search capabilities. The end result will
benefit both online shoppers and hotels by providing better information
for consumers, greater accuracy in reservations and customer service, more
reliable efficiency in reservation system connectivity to Internet
retailers, and enabling participating hotels to better manage inventory.
"We
believe our technology platform will be more efficient than competitors,
ultimately resulting in better prices and more hotel deals," said Joe
Humphry, interim CEO of the new venture. "Through HDS, participating
hotels will offer deals using a 'merchant' business model, similar to the
existing hotel retailers on the Internet."
HDS
plans to distribute its hotel offerings through multiple Internet sites
that affiliate with HDS. HDS is already in discussions with several
Internet travel sites and has signed an agreement with Orbitz. Humphry
said that the ultimate goal is to increase competition for the sale of
hotel rooms online.
This will benefit consumers through better and more
consistent prices and reduced distribution costs for hotels. In addition,
HDS will include a direct consumer site at some time in the future.
"Hotel
brands will not be limited to those affiliated with the original investing
hotel companies, and in fact, HDS will be seeking both independent hotels
and properties affiliated with any and all other chains that may wish to
participate. More importantly, hotel operators that sell through HDS will
be free to enter into agreements with all competitors," said Humphry.
Mr.
Humphry is a long-time travel industry veteran who has been employed by
the founding participants to lead the development of HDS. HDS will be
conducting an executive search to identify the venture's permanent CEO and
management team in conjunction with the company's launch, and for the time
being, will be headquartered in Dallas, Texas.
HDS
is an independent company, and is privately owned by the six founding
participants.
EUROPE’S HOTEL INVESTMENT MARKETS ALIVE AND WELL
Europe's hotel investment markets saw a flurry of
investment activity in the last part of 2001. December saw
investment volumes of €344.3 million, a 37% rise over the same month in
2000 – itself a record year. Jones Lang LaSalle Hotels closed four deals
in the month of December.
"The final
quarter of the year saw transaction volumes hit €746 million,
representing 56.0% of total volume across Europe in 2001, showing a strong
run at the end of the year despite September 11th and its
repercussions" stated Nick Marsh, Executive Vice President at Jones
Lang LaSalle Hotels.
Jones Lang LaSalle
Hotels acted as advisor to the owners of the five-star Hotel Arts
Barcelona which was sold to Deutsche Bank AG's Private Equity Group in
December and represented Europe's largest hotel transaction of the year at
€285 million. "This deal was a watershed for the European hotel
sector, demonstrating that investor interest for quality assets in city
centres is robust" stated Mr Marsh who concluded the deal.
Another deal
concluded by Jones Lang LaSalle Hotels in December was a 300-room hotel
development at Charles de Gaulle Airport in Paris, which was bought by the
German open-ended fund, Commerz Grundbesitz Investmentgesellschaft mbH
(CGI), for €37.5 million. "The German funds have a healthy appetite
for hotel assets to act as a diversifier to their real estate portfolios.
The funds have been witnessing substantial cash in-flows in Germany as a
result of the poor stock market performance, they have a low cost of
capital and are thus very competitive in the sector" stated Christoph
Härle, Director, Germany, at Jones Lang LaSalle Hotels. He added
"This deal reinforces the cross-border investment strategy that many
of the open-ended funds are currently pursuing". According to
research conducted by Jones Lang LaSalle Hotels, German funds had €11.77
billion of cash to invest into European real estate as at October 2001.
Following the
attacks of September 11th and the ensuing dip in global travel patterns,
many of Europe's hotel markets suffered a slump in trading. "While
there is a widespread belief that the softening trading conditions have
caused markets to stagnate, this is evidently not the case" stated Mr
Marsh. "There still remains strong investor interest for prime, city-centre
hotel assets both in the UK and on the Continent. Buyers in the market
include the German funds (as evidenced by these recent deals), some of the
large hotel operators who have high cash reserves, and long term investors
who are not going to make an investment decision based on the next six
months trading performance. On top of this, banks in Europe are still
adopting a relatively open stance to the hotel sector, unlike their US
counterparts, evidenced by The Royal Bank of Scotland providing financing
on the Hotel Arts deal" added Mr Marsh.
A number of
additional deals have taken place in Europe since September 11th. These
include the Berners Hotel in London (216 rooms, €81.4 million), Heathrow
Park Hotel, London (310 rooms, €21.3 million), Radisson SAS Manchester
(360 rooms, €60 million), the Holiday Inn Bonn (252 rooms, €25
million), the Villa Magna in Madrid (182 rooms, €80 million), Maritime
Pro Arte, Berlin (406 rooms), the Ritz-Carlton Schlosshotel Berlin (541
rooms) and the Parkhotel, Bremen (149 rooms).
In contrast to the
level of activity in Europe, less than 15% of hotel transactions in the US
occurred in the final quarter of 2001, down nearly 50% on 2000. Notable
transactions included the Hotel Delmonico in New York (170 rooms, €129
million), the La Costa Resort and Spa, California (479 rooms, €140
million), and the Marriot City Centre in Pittsburg (383 rooms, €72.9
million). However, the Asia Pacific region also finished strongly,
recording half of total 2001 transaction activity in the final three
months, heavily influenced by the sale of the Hyatt Regency Sanctuary Cove
complex in Australia (247 rooms, €116 million).
THE
6TH ANNUAL CARIBBEAN HOTEL & TOURISM INVESTMENT CONFERENCE
APRIL 23-25, 2002, PUERTO RICO, TAKES DEAL MAKING TO A NEW LEVEL
The
6th Annual Caribbean Hotel & Tourism Investment Conference (CHTIC)
2002, will be held April 23-25, 2002, at the Westin Rio Mar Beach Resort
in Puerto Rico, under the theme “The Caribbean Opportunity Meets the
Capital Markets.” The Caribbean Hotel Association (CHA), Caribbean
Tourism Organization (CTO) and Burba Hotel Network present the conference.
CHTIC 2002 features an innovative component, new Regional Focus Panels on
the outlook in the Eastern Caribbean; Puerto Rico and the US Virgin
Islands; the Spanish Caribbean; and the Western, Northern, and the Dutch
Caribbean.
A highly interactive program format seeks to maximize effective interface
between investors, governments and hoteliers. “We have placed great
emphasis on networking opportunities for delegates to meet and conduct
business, in order to take deal-making to a new level at this
conference,” said John Bell, director general and CEO of CHA.
International renowned experts from the fields of banking and finance,
investment, and tourism will address a number of timely subjects,
including:
- The Economy, Travel Patterns and the Outlook for the Hospitality
Industry;
- The Industry Leaders Panel and The Changed Climate for Travel. How has
the Travel Industry Responded? What is the Outlook?;
- Making the Most of the Air Transportation System. Making Airports Make
Economic Sense;
- The Vitally Important Tour Operator/Wholesale Segment. Travel Trends and
Investment Objectives;
- A Successful Project Begins with the Right Development Team;
- Tactics and Strategies to Squeeze The Most Profits >From Hotels When
Times Are Tough;
- The Capital Markets – Where will the Capital come from to Buy and
Build?;
- The Regions Most Active Lenders and Financial Advisors Review Some of
the Regions Best Opportunities. Learn What It Takes To Get Deals Done;
- Understanding the Benefits and Economics of Mixed Use Resorts. Timeshare
& Fractional, Spas, Golf. What Works, What Doesn’t?;
- How to Deal With Troubled Loans, Workouts, Receiverships, and
Bankruptcies. Strategies and Options;
- The Acquisitions Market. Is This The Time to Buy? What Does the
Caribbean Have to Offer?;
- Small Hotel Finance Funding Sources. What is Available And How Does It
Work?;
- Management and Franchise Agreements. What is Negotiable, What isn’t
and what are the Consequences?;
- Public/Private Deals. Stimulating Investment to the Region. Case Studies
of What has
Worked;
- Renovating & Repositioning Existing Hotels. Practical Advice For
Making The Most Out of Existing Assets;
- Timeshare and Fractional Financing Strategies. How Do You Put the Deal
Together?
The conference will once again feature the popular “Meet the
Opportunity” and “Meet the Money” sessions. During “Meet the
Opportunity!,” delegates will hear a brief synopsis of investment
opportunities that exist throughout the region. Following the
presentation, delegates will be able to meet with the developers to learn
more about the opportunities available and have the chance to become more
involved with the various projects.
The “Meet the Money!” session will feature presentations by some of
the most active lenders for hotels and tourism projects located in the
region. Each lender will provide a brief update on the types of deals they
are offering as well as projects in which they are likely to invest.
Following the presentations, lenders will be available to meet with
conference delegates to discuss potential projects.
Patrons of CHTIC 2002 are: Caribbean / Latin America Action; Caribbean
Association of Industry and Commerce; CARICOM / CARIFORUM; Caribbean
Council for Europe; Caribbean Development Bank; Commonwealth Secretariat;
European Union, Caribbean Affairs; International Finance Corporation;
International Hotel & Restaurant Association; Multilateral Investment
Guarantee Agency; Organization of American States; Urban Land Institute;
University of the West Indies; and World Travel & Tourism Council.
The event is sponsored by a number of leading organizations in the tourism
and investment industries: Interval International; Elegant Hotels Group;
Boyken/Mortimer International; Contact Development Corporation; Dick
International; Gunster Yoakley & Stewart P.A.; Hotel & Motel
Management; Hotel’s Investment Outlook; Marriott International; OBM
International; PricewaterhouseCoopers; RCI; Real Estate Forum; Scotiabank;
and Sutherland Asbill & Brennan LLP.
Early Bird Registration for the CHTIC Conference is $875 per person,
through Friday, February 15th. From February 16th, registration is $975.
Registration includes entrance to all sessions and social functions. Daily
rates are also available. For more information about the conference,
contact CHA’s Meetings Department at telephone: 787-725-9139; fax:
787-725-9108; e-mail: kcolondres@caribbeanhotels.org or visit the CHA
website at www.caribbeanhotels.org.
HOSTEC-EURHOTEC
EXCEEDS EXPECTATIONS
In a
year marked by declining travel and attendance at industry tradeshows and
conferences, Accuvia Events (“Accuvia”), the International Hotel &
Restaurant Association (“IH&RA”), and FreshRM, today announced
that the HOSTEC-EURHOTEC Exhibition & Conference (“HOSTEC-EURHOTEC”)
exceeded all attendance expectations and hit a new record for a global
Hospitality and Foodservice Industry technology event.
Co-located with Hotelympia, the leading general hospitality exhibition at
Earl’s Court from February 4th to 8th, there were over 80 technology
exhibitors and more than 7,000 operator attendees that specifically came
to visit HOSTEC-EURHOTEC 2002. Combined with the general attendees from
Hotelympia, the estimated total visitors to the HOSTEC-EURHOTEC exhibition
area exceeded 10,000.
HOSTEC-EURHOTEC, a joint-venture between Accuvia, the IH&RA and
FreshRM, had four main components to the event which included an
exhibition, conference, networking opportunities and the IH&RA
Hospitality and Foodservice Technology Summit. The Educational Conference
featured 26 sessions and over 40 speakers made up of industry leaders,
consultants and educators from around the world.
HOSTEC-EURHOTEC in its first year as a combined event, is the result of
the merger, announced last October, of HOSTEC owned by Accuvia, and
EURHOTEC owned by the IH&RA. Hostec was in its third year and EURHOTEC
in its seventh. Hotelympia 2002, owned by FreshRM in its 67th year hosted
over 45,000 visitors.
Alain-Philippe Feutre, the Chief Executive Officer of the IH&RA said
“I am very pleased with the way HOSTEC-EURHOTEC was able to bring
together the international hospitality and foodservice community
interested in technology, to understand and explore this important,
essential and critical component to operating, working within, and
supporting the industry. It is our mission to further expand our industry
leadership in the technology area and others, by providing these types of
educational opportunities for our members around the world.”
Robert Grimes the Chairman of Accuvia remarked that “the attendance at
this year’s event, proves that the merger between the two shows was the
way to go. It also shows that the international hospitality and
foodservice technology community, acknowledges the need for events of this
type in their own regions of the world. No other event aimed at technology
for our industries, can meet the specialized interests and needs of the
Pan-European marketplace better than HOSTEC-EURHOTEC.”
“By co-locating HOSTEC-EURHOTEC with Hotelympia, we were able to create
an added dimension and opportunity for the visitors to our show” stated
Christopher Newton, the Joint Chairman of FreshRM. He further added,
“the HOSTEC-EURHOTEC combination with Hotelympia, not only contributed
to the attendance to that part of the show, but also brought new attendees
to Hotelympia itself.”
The International Hotel & Restaurant Association is headquartered in
Paris, France. The IH&RA represents over 750,000 establishments in
more than 150 countries and provides a voice at international level for an
industry which comprises more than 300,000 hotels and 8 million
restaurants world-wide, employs 60 million people and contributes US$950
billion to the global economy. The IH&RA is a global network of
independent and chain operators, national associations, hospitality
suppliers and educational centres in the hotel and restaurant industry.
The IH&RA has regional offices in Hong Kong (for Asia Pacific) and in
Mexico (for Latin America). IH&RA events are held all over the world.
Accuvia Events UK, with its world headquarters in Gaithersburg, Maryland
in the U.S. is a leading global technology force in event development,
consulting and publishing for the hospitality, foodservice and retail
industries, and also produces and manages the educational conference of
FS/TEC, the U.S.-based international technology conference and exhibition
for the foodservice industry, which Rob Grimes co-founded with Nation’s
Restaurant News and launched in 1996. Accuvia has offices and affiliates
located throughout the Americas, Europe and the Pan-Pacific regions.
FreshRM is a joint venture company formed by Reed Exhibitions UK and
Montgomery Exhibitions Ltd to bring together under one management the
running of all food, foodservice and hospitality events in their
respective portfolios. With a 67 year history and over 1000 exhibitors,
Hotelympia is the undisputed leading hospitality and foodservice event
attracting 45,000 visitors from all sectors of the market. As well as
technology, the event showcases suppliers from facilities management,
furniture, food & drink, tableware, furnishings, premises and catering
equipment industries.
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