Australian hotel research forecast rreport q3 2012

AUSTRALIAN HOTEL INVESTMENTRESEARCH & FORECAST REPORT

www.colliers.com.au/research

Asian Buyers and Visitor Arrivals Drive Hotel Sector OutperformanceThe hotel sector continues to outperform on a total return basis compared to other commercial assets. According to the latest IPD Property Investment Index, for the year to June 2012, Australian hotel property showed annualised total returns of 13.5%. While this result is below the annualised return to June 2011 of 16.6%, it is signifi cantly higher than returns generated by offi ce (10.5%), industrial (9.7%) and retail (9.1%) property. While a comparatively strong result, the decline in returns was driven by a slowdown in capital growth, which fell from 7.3% in June 2011, to 4.6% in June 2012. During 2011/12, returns were particularly strong for CBD hotels, which showed a total return of 15%. New South Wales hotels returned 13.7%, outperforming Victoria and Queensland, which returned 13% and 9.6% respectively.

AUSTRALIAN HOTEL PROPERTY INDEX RETURNS

-20

-15

-10

-5

0

5

10

15

20

25

Mar

-06

Jun-

06

Sep-

06

Dec

-06

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-07

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07

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07

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-08

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08

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08

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09

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10

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12

Annu

alis

ed R

ollin

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etur

n %

Capital Return Income Return Total Return

Source: IPD/Colliers International Research

Sales activity during the third quarter of 2012 continued to be buoyant with fi ve transactions occurring with a total value of $214.3 million. Of the sales that concluded, 60% were to domestic investors, with the remainder going to off shore purchasers. Calendar year-to-date there have been thirteen major hotel sales across Australia worth just over $1.085 billion, with all but three having sold to overseas purchasers. During 2012, there has been strong interest in Australian tourism assets from Asian investors, particularly from Singapore, who have accounted for nearly half of all purchases so far this year. Investors from Malaysia and China have also been active, refl ecting the strong growth in visitor numbers from these regions. Visitor arrivals from China continue to grow at record levels. During the year to July 2012 visitor numbers from China were up 13.9%, followed by strong growth from Singapore (+9.3%), Japan (+7%) and Malaysia (+5.3%). Figures from the ABS confi rm that China is now Australia’s second largest inbound tourism market behind New Zealand, having recently overtaken arrivals from the United Kingdom.

Q3 2012 | HOTEL INVESTMENT

Palazzo Versace, Gold Coast

Sold by the Sunland Group for $68.5 million to a consortium of Chinese investors. Built in 2000, the resort was one of the fi rst luxury-branded hotels in the world.

The following graph illustrates that from 2003 through to 2007 domestic institutions were the main purchasers of hotel assets in Australia. However, over the past fi ve years, this trend has reversed with Australian domestic institutions being the main vendors, and overseas investors dominating purchasing activity.

ORIGIN OF HOTEL PURCHASERS BY VALUE

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Australia Hong Kong Other Singapore UK USA Japan

During the September quarter 2012, Challenger sold the 4-star Rendezvous Hotel on Flinders Street in the Melbourne CBD for $61 million. The purchaser was Singaporean property group the Straits Trading Company (Rendezvous Trading) who currently lease and operate the hotel. In Australia, the group also owns two other Rendezvous branded hotels located in Perth and leases and manages others in Melbourne, Sydney, Brisbane Adelaide and Port Douglas. Over the course of 2012, we have seen a number of hotel operator’s move to ownership of assets, to secure their presence in the market. Most recently the purchase of the Shangri-La Hotel in The Rocks by the Hong Kong-based Shangri-La Asia. The company had been managing the hotel on behalf of the vendor. The Diplomat Hotel located in the suburb of Griffi th in Canberra has traded for $13.3 million to the Roundhouse Unit Trust, a syndicate of local buyers. The 4-star hotel is strata titled and trades under the name Belconnen Premier Motor Inn. The vendor was the Abacus Hospitality Fund and the sale price achieved was reported to be similar to the carrying value on the fund’s balance sheet. In the largest transaction of the quarter, the 5-star Palazzo Versace hotel on the Gold Coast was sold by the Sunland Group for $68.5 million, to a group of mainland Chinese investors. The sale is subject to approval by the Foreign Investment Review Board and the House of Versace, who still own the brand name. The hotel was opened 12 years ago, and was one of the fi rst fashion-branded hotels in the world. The Sydney-based Barana Group has purchased the Novotel St Kilda in Melbourne for $55 million. The 4-star hotel is located on The Esplanade opposite St Kilda beach, and is operated on a management agreement by Accor. Due to the location and size of the site, it is considered to have residential development potential. The property was sold by Tourism Asset Holdings Limited (TAHL). The Novotel Newcastle has reportedly been sold by Accor Hotels for approximately $16.5 million. Accor only secured the asset late last year as part of its acquisition of the Mirvac portfolio. The transaction is a sale and leaseback arrangement for the group. Private investor Jerry Schwartz, who also owns the nearby Hunter Crowne Plaza, and the Crowne Plaza in Newcastle, purchased the hotel. The 4-star hotel comprises 88 rooms and was rebranded from a Sebel to the Novotel in the middle of the year. With the Brookfi eld Asset Management takeover and privatisation of the Thakral Holdings Group set to proceed, they will gain control of six hotel assets. The portfolio of 4-star and 5-star hotels comprises the Sofi tel Brisbane and Sofi tel Gold Coast (managed by Accor), The Menzies in Sydney, the Novotel Brighton and Novotel Wollongong, and the Hilton on the Park in Melbourne. The strong performance of the Perth market has resulted in TAHL reportedly taking the Novotel Perth Hotel Langley off the market, preferring to hold the asset for the medium term and benefi t from the strong cash fl ow the asset is generating. The hotel market in Perth continues to be the standout performer across the country, with growth in average room rates running at 11.7%, and occupancy levels of around 85%, resulting in RevPAR growth of 15.3%.

During 2012, there has been strong interest in Australian tourism assets from Asian investors, particularly from Singapore, who have accounted for nearly half of all purchases so far this year

COLLIERS INTERNATIONAL | P. 2

RESEARCH & FORECAST REPORT | Q3 2012 | HOTEL INVESTMENT

Inter Market ComparisonREVPAR • Average growth in RevPAR across Australia

was 4.5% for the 12 months to March 2012;• Over the year to March 2012, Perth recorded

the highest increase in RevPAR with 15.3% growth followed by Brisbane at 9.8%;

• For the same period, all cities except Hobart (-0.8%) recorded increases in RevPAR.

CHANGES IN REVPAR OVER 12 MONTH PERIOD TO MARCH 2012

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% C

hang

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Source: ABS/ Colliers International Research

CHANGES IN AVERAGE ROOM RATE OVER 12 MONTH PERIOD TO MARCH 2012

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PERCENT CHANGE IN OCCUPANCY RATE OVER 12 MONTH PERIOD TO MARCH 2012


Average Room Rates• Perth recorded the largest increase in

annualised average room rates, growing by 11.7% to $188.92;

• Sydney and Canberra recorded healthy growth in annualised average room rates with 6.4% and 5.8% respectively;

• Cairns was the only city measured that recorded a decrease (-1.4%) in annualised average room rates;

• Across all regions measured, the average room rate increased by 3.5%.

Occupancy• Perth and Sydney had the highest occupancy

rates of all cities measured, each with 85.3%. These were followed by Brisbane at 80.3% occupancy and Melbourne with 79.3%;

• The average occupancy rate across all regions measured was 75.0%;

• Hobart experienced the largest decline in occupancy, with a drop of 2.1 percentage points, taking its annual occupancy rate to 71.9%.



City ComparisonSydney CityTotal Star Graded• In Sydney, annualised average room rates

increased 4.7% to $188.59 over the year to March 2012;

• RevPAR also increased during the time period, recording growth of 3.6%;

• However, occupancy rates declined over the 12 months to March 2012, falling from 86.1% to 85.3%.

SYDNEY CITY TOTAL STAR GRADED

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Average Room Rate RevPAR Occupancy


MELBOURNE CITY TOTAL STAR GRADED

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BRISBANE CITY TOTAL STAR GRADED

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Melbourne CityTotal Star Graded• Annualised average room rates in Melbourne

increased by 1.8% from $169.48 to $172.62 over the year to March 2012;

• RevPAR recorded an increase of 2.6% over the same period;

• Occupancy rates in Melbourne increased marginally from March 2011 to March 2012 to be 79.3%.

Brisbane CityTotal Star Graded• The average room rate rose 6.4% from

$153.30 in March 2011, to $163.81 in March 2012;

• Over this same time period RevPAR increased from $118.55 to $131.50, an increase of 9.8%;

• Occupancy rates in Brisbane increased 3.0% over the year to March 2012.



Gold Coast CityTotal Star Graded• The average room rate rose one and a half

percentage points on the Gold Coast over the year to March 2012, to $134.11;

• From March 2011 to March 2012 RevPAR increased 0.6%;

• Annualised occupancy rates on the Gold Coast increased by three percentage points to 80.3% over the year to March 2012.

City Comparison continued GOLD COAST TOTAL STAR GRADED

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CAIRNS TOTAL STAR GRADED

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ADELAIDE TOTAL STAR GRADED

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Cairns CityTotal Star Graded• Annualised average room rates in Cairns

decreased from $116.28 in March 2011 to $114.70 in March 2012, or 1.4%;

• Over the same 12-month period RevPAR increased 2.9%, moving from $65.33 to $67.26;

• Occupancy rates also increased 2.4%, to 58.6% over the year to March 2012.

Adelaide CityTotal Star Graded• In Adelaide, annualised average room rates

increased over the year to March 2012 from $141.50 to $144.86;

• RevPAR moved 6.4%, from $106.47 to $109.28, over the year to March 2012;

• Annualised occupancy rates increased from 75.2% to 75.9% during the period from March 2011 to March 2012.



Perth CityTotal Star Graded• From March 2011 to March 2012 annualised

average room rates in Perth increased from $166.74 to $188.92, or 11.7%;

• Over the year to March 2012 RevPAR increased 15.3%;

• Occupancy rates in Perth increased 3.5% to 85.3% over the 12 months to March 2012. This is the highest occupancy rate recorded in all the measured cities.

City Comparison continued PERTH CITY TOTAL STAR GRADED

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CANBERRA TOURISM REGION TOTAL STAR GRADED

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DARWIN TOURSIM REGION TOTAL STAR GRADED

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Canberra Tourism RegionTotal Star Graded• The average room rate in the Canberra

Tourism Region increased by 5.8% to $161.24 over the 12 months to March 2012;

• Over the year to March 2012 RevPAR increased 6.4% to $119.34;

• Occupancy increased by half a percentage point to 74% from March 2011 to March 2012.

Darwin Tourism RegionTotal Star Graded• Annualised average room rates in the Darwin

Tourism Region decreased marginally to $142.05 over the 12-month period to March 2012;

• RevPAR increased 1.8% from $100.81 in March 2011 to $102.65 in March 2012;

• Occupancy rates in the Darwin Tourism Region increased one and a half percentage points to 72.3% over the year.



Hobart and Surrounds Tourism Region Total Star Graded• Over the year to March 2012 average room

rates in the Hobart and Surrounds Tourism Region increased from $129.25 to $132.00;

• During this time period RevPAR decreased 0.8% from $95.69 to $94.93;

• Annualised occupancy rates also decreased in the region from 74.0% to 71.9% over the 12-month period to March 2012.

City Comparison continued HOBART AND SURROUNDS TOURISM REGION TOTAL STAR GRADED

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Due to changes made by the Australian Bureau of Statistics (ABS) to their geographic framework for survey data, the regions covered in this report have changed slightly.



COLLIERS INTERNATIONAL

Level 12, Grosvenor Place225 George StreetSydney, NSW, 2000TEL 02 9257 0222FAX 02 9347 0710

Colliers International does not give any warranty in relation to the accuracy of the information contained in this report. If you intend to rely upon the information contained herein, you must take note that the information, fi gures and projections have been provided by various sources and have not been verifi ed by us. We have no belief one way or the other in relation to the accuracy of such information, fi gures and projections.

Colliers International will not be liable for any loss or damage resulting from any statement, fi gure, calculation or any other information that you rely upon that is contained in the material. COPYRIGHT - Colliers International 2012.

Accelerating success.

www.colliers.com.au/research

Outlook Despite the strong Australian dollar, there are signs emerging that the growth in outbound travel by Australians is moderating. We anticipate that this will continue over the next few years (especially if the value of the Australian Dollar starts to decline), with the focus returning to domestic travel. According to the Tourism Research Australia, there were 75.1 million overnight domestic trips taken by Australian residents during the year to June 2012. This fi gure is up 6% on the previous year. Expenditure by Australians on domestic tourism was $50.8 billion for the year ended June 2012, an increase of 9% compared with the corresponding period last year. Further to the announcement that the Sydney Convention and Exhibition Centre will close at the end of 2013 until late 2016 for redevelopment, interim facilities will be established at Glebe Island. The Glebe Island Expo will provide 15,000 sq m of exhibition space, plus an extra 10,000 sq m for larger shows, whilst the new 20-hectare Sydney International Convention, Exhibition and Entertainment Precinct (SICEEP) takes shape. Other venues expected to benefi t from the temporary closure include Sydney Olympic Park, Moore Park, Sydney’s hotels, the Australian Technology Park, and Allphones Arena, which will all play an expanded role in hosting conferences, exhibitions and entertainment during the construction period.The pace of hotel development activity across Australia continues, with several new schemes confi rmed recently. In the Sydney CBD, the Singapore-based M & L Hospitality Group, the owners of the Four Points by Sheraton Darling Harbour, are seeking approval for a $150 million expansion. The plans comprise the addition of 231 rooms, 4,810 sq m of convention space and 5,775 sq m of commercial offi ce space. Construction is expected to start in 2013, with completion in 2015. In Western Australia, Crown Limited has fi nalised an agreement with the state premier to open the Crown Towers Perth in 2016. The hotel will feature 500 rooms, restaurants, bars and convention facilities. Also in Perth, plans have been announced for a 120 room, 4.5-star hotel to replace the Fremantle Myer store. The department store will close next year, with the building owner Sirona Capital reportedly in talks with potential hotel operators. In addition to activity in Western Australia, Crown Limited has now signed an exclusive dealing arrangement with Lend Lease for the development of a luxury hotel at Barangaroo in the Sydney CBD. Building approvals will still be required from the New South Wales Government once a concept is agreed upon. We expect investment activity in the sector to continue at a strong pace over the remainder of the year, with a number of major hotel assets currently on the market. Being advertised with residential conversion potential is The Mercure Sydney Potts Point (formerly The Crest Hotel). The refurbished 4-star hotel is managed by Accor and owned by Australand. It has 227 rooms, a 60 bay basement car park, as well as conference and restaurant facilities. In what will be the fi rst transaction of a major hotel in Tasmania for about six years, the Leisure Inn Hobart Macquarie is for sale. The 10-storey hotel is located in the Hobart CBD and comprises 131 rooms. A major refurbishment was completed in 2010/11 and the asset is available with vacant possession providing potential for rebranding and repositioning. Also on the market is the Park Regis City Centre in the Sydney CBD. Located opposite Hyde Park, the 3.5-star hotel has 122 rooms, a rooftop swimming pool and parking for 39 vehicles. The last refurbishment was completed in 2008, and the property is currently managed by the StayWell Hospitality Group. Singapore-based Lasseters International has listed for sale its Cypress Lakes Resort in the Hunter Valley and its four Golden Door branded health retreats across Australia. The Cypress Lakes resort is situated on approximately 100 hectare of land and comprises extensive conference facilities across four venues, leisure facilities and an 18-hole golf course. Guest accommodation is provided through the management rights of circa 125 strata titled villas, currently branded the Grand Mercure Apartments. The property also encompasses two development sites of 9.1 and 3.2 hectares. Overall, we have continued to see growth in revenue across most of the major hotel markets in Australia during the fi rst three quarters of the year. Perth and Darwin, followed by Cairns and Brisbane in Queensland, have led revenue growth. Sydney continues to achieve one of the highest occupancy rates (at approximately 84%) in Australia, but rate growth in 2012 on a year-to-date basis has been disappointing. Similar to Melbourne, current occupancy levels suggest the opportunity for further rate growth in 2013, but this will ultimately be dependent on macro-economic factors and shifts in global economic sentiment.

522 offi ces in 62 countries on6 continentsUnited States: 147 offi cesCanada: 37 offi cesLatin America: 19 offi cesAsia Pacifi c: 201 offi cesEMEA: 118 offi ces

• $1.8 billion in annual revenue

• 1.25 billion square feet under management

• Over 12,300 professionals worldwide

RESEARCHER

Nora Farren

Director | ResearchTEL 02 9257 0289FAX 02 9347 0789EMAIL [email protected]

RESEARCH & FORECAST REPORT | Q3 2012 | HOTEL INVESTMENTRESEARCH & FORECAST REPORT | Q3 2012 | HOTEL INVESTMENT

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Australian hotel research forecast rreport q3 2012