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Hotel Bulletin: Q3 2014 Zolfo Cooper, AM:PM, HVS


Supply and pipeline Aberdeen supply risk


In the graph below (left), we compare the proportion of current supply (inner circle) and active pipeline (outer circle) in the UK market by sector. It is evident that budget hotels continue to dominate both supply and active pipeline with 33% and 50% of the total population respectively.


Aberdeen now has active pipeline of 16% of current supply. Developers have been attracted to the city by performance improvement driven by significant corporate demand from the oil and gas industry. However, in Q3 2014, occupancy in the city decreased by 7% on the previous year. With supply set to increase by 16% in the next three years, there is a risk of oversupply which may lead to flat or declining RevPAR performance.


Notable new openings and developments in the quarter include:


• Accor Group opened two Ibis hotels in Edinburgh with a total of 264 bedrooms. These openings form part of Accor’s plans to open five new hotels in London and Edinburgh by the end of 2015.


• The 153 bedroom luxury Titanic Hotel in Liverpool opened in July in the Grade II 19th


Century North Warehouse after a £36 million


regeneration. The development was partly funded by BPRA investors.


• Ennismore Capital opened its second Hoxton hotel after the conversion of former BT offices on High Holborn, London. The 174 bedroom Hoxton Holborn features two restaurants operated by Soho House.


• Z Hotels opened the 104 bedroom Z Glasgow following the conversion of Gladstone House next to George Square. The group also operates three hotels in London and one in Liverpool and has a hotel in Bath and two additional London sites in the active pipeline.


• IHG announced plans to open a new 130 bedroom Crowne Plaza on Albert Embankment in London in 2015.


2014 total hotel transaction value surpasses 2013 by Q3


There has been a substantial increase in transaction activity in the hotel sector in Q3 2014. £1.4 billion of transactions completed in the quarter, £1.1 billion more than the same period in the previous year. With one quarter remaining, the total UK hotel transaction value has surpassed 2013, which was the most active year since the downturn.


Transaction values are being driven up by a significant level of investment capital being ta rgeted at the hotel sector by real estate investors. These investors are looking to real estate-linked sectors such as hotels in search of higher yields in comparison to standard real estate. The lack of suitable properties is also contributing to the high values achieved by creating ‘price wars’ as buyers compete to acquire new sites.


Notable transactions include:


• Kew Green Holdings acquired 19 Holiday Inn hotels from LRG Holdings for a reported £30 million over guide price. Kew Green is now the largest Holiday Inn franchise partner in Europe with a total of 38 hotels.


• Topland Group, advised by Zolfo Cooper, acquired Hallmark Hotels’ portfolio of eight four-star hotels with a total of 730 bedrooms for a reported £75 million. Topland now has a portfolio of 30 hotels across the UK.


• Accor acquired a portfolio of 13 Ibis hotels with a total of 1,194 bedrooms from Tritax for £70 million. Three Accor owned F1 hotels adjacent to these properties will be updated as extensions of these hotels.


• 144 leased Travelodge hotels have been sold to a consortium which includes Avenue Capital, Goldentree Asset Management and Goldman Sachs, for an estimated £520 million. The acquiring consortium owns Travelodge after completing a debt-for-equity swap in 2012.


• US investment firm Marathon Asset Management acquired 11 QMH hotels operating under Crowne Plaza, Holiday Inn and Best Western PLUS brands. Seller Goldman Sachs acquired the hotels as


part of a group of 80 in 2004. UK current supply and active pipeline by grading Transactions by quarter 1 2 3 4 5 6 7 8 9 10 13% 18% 29% 14% 24% 32% 31% 4%


4% 3% 8%


9% 25% 7% 33% 36% 50%


0.5 1.0 1.5 2.0 2.5 3.0 3.5


- Q1 Apartments Budget 43% 3 star 4 star 5 star


Source: AM:PM Notes: Active pipeline refers to hotel bedrooms with an opening date in the next three years


The budget category includes hostels, budget and two star hotels


Source: HVS Note:


Q2


Portfolio 2013 Portfolio 2014


Q3 Q4 Total


Single asset 2013 Single asset 2014


Only disclosed hotel transactions over £6 million included in analysis


03


£bn


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