The Hotel Property

Handbook
Investment & Financing Keys
Spain 2017

May 2017
Financial Advisory I Real Estate - Hospitality
@ 2016 Deloite Financial Advisory 1
 2 4
► From 2013 to 2016, ADR grew on average by Key Investment
14% in Spain. In addition, occupancy rate has
significantly grown from 57% to 66% (+840bps). and Financing
The Hotel Property Handbook ► RevPar has grown by 31% (2013-16) due to
Drivers
Spain 2017 the increase of both ADR and occupancy rate.
Supply & ► 54 new hotels opened in 2016 with a total of
► High Liquidity for both
Equity and Lending due to
Demand 5,697 new rooms. the improvement of KPIs
EXECUTIVE SUMMARY i. 87% of total rooms in 4* and 5* throughout Spain.
hotels and 95% in the selected hotspots
► Increasing financing
ii. 45 hotels belong to mayor hotel

1
demand for prime
chains and only 9 belong to development projects,
independent operators. including refurbishment,
repositioning and greenfield
► The main chains´ priorities are innovation,
sustainability, asset renovation, brand ► Location, category,
repositioning, the client experiences and performance and hotel
Market digital strategy to become the market leaders. brand significantly impact on
financing terms.
Overview

Tourism is one of Spain’s growth
Key drivers
2015 vs 2016
► GDP growth: +3.2% 2016 (+2.6% 2017 F),
Tourism grew by 4.9% and accounts for 11.3%
of total Spanish GDP
► Unemployment fell to 19.2% in 2016, while
tourism accounted 12% of all employment
► 75.6 million visitors in 2016 (+10.9%)
► Tourism Business Confidence Index
shows figures that are pre-crisis levels and close
to maximum levels
► For the second year running, Spain holds the
leader position in the WEF Travel &
Tourism Competitiveness Report
@ 2016 Deloite Financial Advisory
3 5
Hotel Real Estate
Investment
Market
► The EMEA region accounts for 27% of the total Hotel Real
Estate Investment volume. Spain accounts for 12%
In Spain, Hotel Investment volume decreased by 21%
►
2016 (€2,145m) and accounted for 17% of total non-
residential investment
► SOCIMIs (Spanish REITs) took part in 44% of total
Hotel transactions in Spain
► Spain is the leader in Real Estate valuation
growth in Europe. In 2016 Madrid and Barcelona RE
valuations increased by 11% and 14%, respectively.
Key
Factors
Full Due Diligence required to
perform the optimal deal analysis:
in
► 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).
2
 The Hotel Market:
Unitary Values Analysis (€/room)
The Hotel Property Handbook 10 Year
Spain 2017 Bond
2016-2017
(1 March 2017)
0,92% 1,15% -0,22% -0,22% 2,12% 2,12% 0,34% 1,67% 2,12% 0,23% 0,62% 1,67% 0,91% 1,15% 0,55 %
▼4 bps ▼65 bps ▼ 22 bps ▼ 22 bps ▲ 50 bps ▲ 50 bps ▼ 43 bps ▼17 bps ▲ 50 bps ▼ 34 bps ▼ 22 bps ▼17 bps ▼16 bps ▼65 bps ▼ 59 bps
Yield 2016 – Dif. 10

EXECUTIVE SUMMARY years bond

408 bps 310 bps 547 bps 522 bps 363 bps 388 bps 516 bps 433 bps 388 bps 477 bps 538 bps 458 bps 509 bps 360 bps 545 bps

€800k

Capital Values Growth (%)

(8.1%) (13.9%)

Drivers increase in cross-border (6.2%) €600k

investments: (4.0%)

1
0.5% 1.7% 6.6%
Yielding Assets are more €400k
attractive than Investment 13.9% (3.7%) (1.1%)
7.9% 11.0% 4.6% 15.5% (6.7%) 5.0%

Capital Value per

Grade Bonds

room (2015-16)
2015-2016
2
€200k
Returns expected in Spain
through hotel investment are
above the European average

Copenhagen
Amste rdam

Stockholm
Edinburgh
Strength of the dollar (For

Barcelona
Florence
American investors) and

London

Genev a

Munich

Europe
Madrid
Zürich

Dublin
Rom e
weakness of the Euro since 2014

Milan
Paris
€800k

4
Political and financial

Capital Value per room

uncertainly in certain
countries is favouring Spain €600k

Trend 2006-2016
€400k

The outstanding €200k

tourism performance
is expected to continue
improving in 2017. -

@ 2016 Deloite Financial Advisory Max. Min (2006-16) 2015 2016 3

Source: HSV London
 European Investment Market
The Hotel Property Handbook Hotel Villa Magna (Spain), with €180m of Investment
Spain 2017 Volume, was the main transaction in Spain and the sixth
largest in Europe in 2016.
EXECUTIVE SUMMARY

12% of the Total Hotel

Investment of the countries €344m
analysed.
€336m
€260m €280m
Sweden Belgium
Ireland Russia
2% 1% Norway
1% Switzerland
€180m €207m
3% 2% 1%
Netherlands Poland
4% 1%

Italy Germany Spain United Kingdom United Kingdom Italy United Kingdom France
31%
7%
Hotel Villa Park Plaza InterContinental Hilton Molino Doubletree Le Meridien
France Magna Victoria London O2 Stucky Tower of London Etoile
12%
United Kingdom Hotel Hotel Hotel Hotel Hotel Hotel
23%
Spain
12%

Source: Deloitte Data Base

BUYER BUYER BUYER BUYER BUYER BUYER
Dogus Holding PPHE Hotel Group Arora Hotels Marseglia Group Muirgold Ltd Kuwait Inv. Authority

Hotel Villa Magna VENDOR VENDOR VENDOR VENDOR VENDOR VENDOR

Queiroz Family n.a. Queensgate Invest. Acqua Marcia Blackstone Cedar Cap. Part.
150 units 299 units 453 units 380 units 582 units 1,025 units

Source: Deloitte Data Base and third party sources

For more information see CHAPTER 3 (Investment Market)

@ 2016 Deloite Financial Advisory 4

 European Investment Market:
The Hotel Property Handbook
Spain 2017
Spain is a significant player.
Spain, with €2,145m of hotel investment volume in 2016,
is playing a main role within the European Market.
EXECUTIVE SUMMARY Price
# Country Asset Units Buyer Vendor
(€m)
1 France Le Meridien Etoile 1,025 344 Kuwait Investment Authority, Wafra,
C edarHenderson
C apital Partners
Park
European Yields & Capital Values (2016): 2 United Kingdom Doubletree Tower of London 582 336 Muirgold Ltd Blackstone
3 Italy Hilton Molino Stucky Venice 380 280 Marseglia Group Acqua Marcia
Capital Value Lease Yield
City Country
(€k per room) 2016
4 United Kingdom InterC ontinental London O2 453 260 Arora Hotels Queensgate Investments
Paris France €644k 5.00% 5 United Kingdom Park Plaza Victoria London 299 207 PPHE Hotel Group n.a.
London UK €601k 4.25% 6 Spain Hotel Villa Magna 150 180 Dogus Holding A S Queiroz Pereira Family
Zürich Switzerland €506k 5.25% 7 France Hotel George V 244 178 Kingdom Holding C o n.a.
Geneva Switzerland €440k 5.00% 8 France Sofitel Paris Le Faubourg 147 162 Joint Treasure Intl Emad Salib, Mount Kellett
Rome Italy €394k 5.75% 9 United Kingdom Hilton London Wembley 361 136 Al Habtoor Group Oaktree
Florence Italy €375k 6.00% 10 United Kingdom Premier Inn Farringdon 326 121 Aviva Investors Whitbread
Amsterdam Netherlands €371k 5.50% 11 United Kingdom Premier Inn Tothill St 339 120 M&G Investments Whitbread
Barcelona Spain €327k 6.00% 12 United Kingdom Hub by Premier Inn Kings C ross 389 110 Legal & General Property Whitbread
Milan Italy €318k 6.00%
13 United Kingdom Go Native 178 101 Osprey Equity Partners Sharma Family, Reef
Munich Germany €297k 5.00%
14 Germany Hyatt Regency Dusseldorf 303 100 Algonquin, Aviva Investors n.a.
Copenhagen Denmark €276k 6.00%
15 Germany C enter Parc Allgau VIP C ottages 250 99 La Française Global AM Eurosic
Madrid Spain €268k 6.25%
16 United Kingdom Travelodge Royal Scot 408 91 Magnificent Estates TH Real Estate
Europe €267k 6.00%
17 Spain Pullman Skipper Hotel 241 90 Shaftesbury AXA REIM

For more information see CHAPTER 4 in the 18 United Kingdom Doubletree by Hilton Hotel Docklands Riverside
378 90 Junson C apital Bayside C apital
19 United Kingdom Radisson Blu Edwardian Grafton Hotel 330 83 n.a. Derwent London
full report (Key Investment and Financing
20 Germany Villa Kennedy 163 77 GEG German Estate Group hausInvest
Drivers).
22 Spain Gran Hotel Velazquez 110 63 Didra (grupo de Rafael Ardid) Familia Salazar
24 Spain Byblos Hotel 144 60 Ayco Grupo Inmobiliario Amsprop Ltd
2 Spanish transactions are 34 Spain Hotel NH Suecia 127 45 Internos Global Investors Explotadora de Hoteles EDTL
included within the Top 20 47 Spain Aldiana Fuerteventura 361 30 Alfredo Morales Mohamed M. Abou El-Enein

European deals. 50 Spain Convento de SAN Bartolome 122 28 C aboel Grupo SL San Bartolome Muinoa SA

These Spanish transactions amount to Source: Deloitte Data Base

€270m and account for 9% of the For more information see CHAPTER 3 (Investment Market)
Top 20 investment volume
@ 2016 Deloite Financial Advisory 5
 Spanish Investment Market
The Hotel Property Handbook Hotel property investment decreased by 21% in 2016
Spain 2017 while total non-residential investment increased by 5%.
However, the hotel segment continues to improve.
EXECUTIVE SUMMARY

Top 10 Spanish single asset transactions: 12,398

12,000 Hotels 11,845
Price
# Asset Units Typology Logistics
(€m)
1 Hotel Villa Magna 150 180 Urban
10,000
2 Pullman Skipper Hotel 241 90 Urban Retail High Street 4,895
3 Gran Hotel Velazquez 110 63 Urban 8,552 5,313
4 Byblos Hotel 144 60 Vacational Retail Shopping Centre
Rest of CRE
5 Hotel NH Suecia 127 45 Urban 8,000
6 Aldiana Fuerteventura 361 30 Vacational Offices 2,520 83%
7 C onvento de San Bartolome 122 28 Vacational
8 Be Live Lanzarote Resort 372 28 Vacational
6,000
9 Hotel Marble Stella Maris 300 25 Vacational 1,894 3,769
- Hotel Jardín Tropical 390 n.a. Vacational 4,470 2,297
4,000 1,460 1,263
Total Hotel investment volume in 3,189 3,151
660
Source: Deloitte Spain as at 2016: €2,145m 644 1,056 2,087
807
2,242
674
930
2,000 687 544 867
1,467
591 365 596 2,702 Hotel
751 2,145
150
750
279
576
571
88
519
120
607 897 17%
A total pipeline investment -
volume of more than
2010 2011 2012 2013 2014 2015 2016

€2,000m is expected Source: Deloitte Data Base and third party sources - 21%
to be traded in Spain For more information see CHAPTER 3 (Investment Market)

@ 2016 Deloite Financial Advisory 6

 Spanish hotel properties performance
The Hotel Property Handbook RevPar increased by 31% on average in Spain from 2013
Spain 2017 to 2016.

EXECUTIVE SUMMARY VACATIONAL Main Touristic Areas

140 137
URBAN Main Touristic Cities
140
135 137 133

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

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

135

SPAIN’S GEOPOLITICAL
130 130
GDP CONTEXT 130
grew by 3.2% The Spanish 124 125 129
during 2016. Tourism Industry 125 126 125
Tourism accounts is benefiting from
for 11.3% the current
of Spain’s GDP geopolitical 119 124 120
RECORD context
CONSUMER 120 120 118
CONFIDENCE
FIGURES 2016 117
CCI has
75.6 million tourists
came to Spain in
experienced an 115 115 115
Uptrend since 2012
2016 spending
and is close to
111 111
€77.6k million
max. levels 110 113 114
GROWTH 110 110
TOURISM BUSINESS 106 108
COMPETITIVENESS CONFIDENCE
105 105
Spanish Tourism Tourism Business 105
industry Confidence close
acknowledged as to max. levels
100 105 100
the world’s most since 2016 100 100
competitive 101
EMPLOYMENT BREXIT
In contrast to
Tourism-related
previous estimates, 95 95
employments
12% more UK
accounts for 12%
tourists came to 2013 2014 2015 2016 2013 2014 2015 2016
of Spain’s
Spain during 2016
employments Andalusía Catalonia
Madrid Barcelona
Community of Valencia Balearic Islands
Valencia Avrg. Urban dest.
Canary Islands Avrg. Vacational dest.

Hotel assets are in greater Spanish KPI’s evolution (2013 to 2016)

demand as the tourism industry
is surpassing historical records
every year for a significant
ADR + Occupancy = RevPar
+14% +840bps +31%
profitability increase
@ 2016 Deloite Financial Advisory
For more information see CHAPTER 2 (Supply and Demand) 7
 Spanish hotel new openings
The Hotel Property Handbook Significant increase in hotel openings during 2016
Spain 2017

EXECUTIVE SUMMARY Hotel openings

trend (2010-16)
(number of hotels and
200 12
000

2016 openings by type of project: 180

rooms)
10
000

160

140

New 80
00

6,907
developments 120

16.8%
Conversion
5,396
5,745 5,697
28.9% 5,120
100 60
00

80

Refurbishment 60
3,124 2,825
40
00

54.3%
40

20
00

20

82 62 68 57 56 34 54
Source: Censo Alimarket Hoteles
- 0

2010 2011 2012 2013 2014 2015 2016

New Hotels # rooms

Hotel openings trend

increased in 2016. c.65
hotels expected to open in 2017
Source: Censo Alimarket Hoteles
@ 2016 Deloite Financial Advisory
For more information see CHAPTER 2 (Supply and Demand) 8
 Financing Market
The Hotel Property Handbook Yielding assets: Increasing lending demand due to the
Spain 2017
outstanding tourism industry performance

EXECUTIVE SUMMARY 2013-14 2015 2016 2017YTD

Framework Credit Access Financing
Constraints Upturn
MAIN DRIVERS FOR THE INCREASING
LENDING DEMAND

Main Conditions
Institutional
Main Players Investors / Debt Banking / Insurance
MACROECONOMIC ENVIRONMENT Funds Companies
 Improvement of fundamentals
 Monetary Policy: QE, low funding costs, etc. Upfront Fee 150-250bps 125-175bps 100-150bps 90-135bps
FINANCIAL SECTOR
 Restructuring of the Financial Sector Spread 225-400bps 200-250bps 175-225bps 150-225bps
 P&L reconstruction

REAL ESTATE INVESTMENT MARKET

 Excess of Liquidity: Increase in transactions LTV (1)

45-50% 45-55% 50-60% 50-65%
 Entry of new sponsors
 Alternative to the fixed income / bond yields
Balloon (2)
60-80% 65-100% 70-100% 70-100%

 Development loans: (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
Traditional lenders are service). Estimated balloon for a 5-7 years loan.

coming back Location, category, performance, type of operating contract (and mandatory period duration)
and hotel brand significantly affect financing terms.
Senior Debt:
 Yielding assets: Source: Deloitte
gathering momentum
@ 2016 Deloite Financial Advisory For more information see CHAPTER 4 (Key Investment and Financing Drivers) 9
 The Hotel Property Handbook Main Players:
Spain 2017
Equity Main Chains
EXECUTIVE SUMMARY

THE CORE PROFILE STILL DOMINATES THE MARKET:

2015 2016

Va l ue
Va l ue
Added
Added
10%
13.7% Core+
11%
NPLs portfolios
Core+ Core
30.0% 56.3%
Core
79%

(€m)
More than 10,000 rooms in Spain

Debt
€m €m
Core 1,522 Core 1,702
Core+ 811 Core+ 234
Value Added 369 Value Added 209
Source: Deloitte

The Most active

players are expected
to stay active in 2017:
Source: Deloitte
For more information see CHAPTER 4 (Key Investment and Financing Drivers)
@ 2016 Deloite Financial Advisory 10
The Hotel Property Handbook
Spain 2017

WHAT IS
NEXT?
@ 2016 Deloite Financial Advisory 11
 Innovation

The Hotel Property Handbook

Spain 2017
Sustainability Digital strategy
BREEAM & LEED
EXECUTIVE SUMMARY

LEADING SUSTAINABILITY
CERTIFICATIONS

Hotel
Property

Customised experiences Renovation

BREEAM and LEED certifications are the
most significant sustainability certifications
worldwide. Both standards are
regularly updated in line with the Brand repositioning
market.
@ 2016 Deloite Financial Advisory 12
The Hotel Property Handbook Most significant value drivers for CEOs in 2017
Spain 2017

EXECUTIVE SUMMARY
Select the two most significant drivers to improve
#1 capital and asset efficiency in 2017
Income
“Expectativas 2017 increase
The Experience Revolution” Repositioning investing 35%

#2 Optimise and invest in asset maintenance 33%

Operating
margin Systems investments 28%
improvement
Non-profitable asset sales 25%

#3 Cash Management 23%

Talent and
brand Renegotiate funding sources 17%
management
Accounts receivable and payable management 15%

#4 Acquisitions 15%
Asset and
capital Supplier and debtor management 7%

efficiency CapEx optimisation 2%

@ 2016 Deloite Financial Advisory 13

The Hotel Property Handbook
Spain 2017

EXECUTIVE SUMMARY

The refurbishment of Gran Hotel

Velázquez is a clear example of an
upgrade strategy in order to
reposition the hotel as a world-class
hotel to target an upper client segment.
Deloitte´s role:
• Lender Multidisciplinary Due Diligence
• Project Monitoring Services
• RICS Valuation

Gran Hotel Velázquez

Madrid

Gran Hotel
Velázquez will be
upgraded to a 5 star
hotel with 111
rooms.
@ 2016 Deloite Financial Advisory 14
The Hotel Property Handbook
Spain 2017

EXECUTIVE SUMMARY

Jardín Tropical hotel is a clear example

of the importance of a portfolio
strengthening strategy to
consolidate the hotel as a market
reference.

Deloitte´s role:
• Full sell side advisory:
• Vendors Due Diligence
• Transaction execution

Jardín Tropical 4* Hotel

Costa Adeje, Tenerife -
Canary Islands

The 4 star hotel has

375 rooms and the
Las Rocas Beach
Club leisure area.
@ 2016 Deloite Financial Advisory 15
The Hotel Property Handbook
Spain 2017

EXECUTIVE SUMMARY

Silken Puerta América is a unique

hotel. It demonstrates a niche
strategy and each floor is different.

Deloitte´s role:
• Business Plan analysis & turnaround
advisory.
• Technical and Town Planning review.

Silken Puerta América Hotel

Madrid

The hotel is a 5 star

luxury hotel with
315 rooms.
@ 2016 Deloite Financial Advisory 16
 Javier García-Mateo, MRICS

Partner
Financial Advisory ‖ Real Estate
jgarciamateo@deloitte.es
Mob: +34 659 90 02 15

Ana Granado, MRICS

Director
Financial Advisory ‖ Real Estate
agranado@deloitte.es
Mob: +34 630 78 44 73

Jose María Espejo

Senior Manager
Financial Advisory ‖ Real Estate
jespejo@deloitte.es
Phone: +34 918 232 692

Fernando Baldellou

The Hotel Property Partner

Head of Financial Advisory – Hospitality

Handbook
fbaldellou@deloitte.es
Phone: +34 914 432 514

Spain 2017
Jordi Schoenenberger

Partner
Hospitality Industry Leader
jschoenenberger@deloitte.es
Phone: +34 932 543 932
@ 2016 Deloite Financial Advisory 17