The Hotel Property Handbook 4...The Hotel Property Handbook 4.0 Investment & Financing Keys Executive Summary Spain 2019 Financial Advisory I Real Estate & Hospitality June 2019 @

@ 2019 Deloitte Financial Advisory

1

The Hotel Property

Handbook 4.0Investment & Financing Keys

Executive Summary

Spain 2019

Financial Advisory I Real Estate & Hospitality

June 2019


2

1Tourism Outlook From a Global Perspective

4Growth DriversCapEx, Sustainability, Digitalization…

Worldwide tourism is gaining momentum, 2018 evidences its strength amid the current global economic and geopolitical outlook. Spain keeps beating expectations despite deceleration and consolidates as the world’s 2nd largest destination by both international tourist arrivals and earnings. The Tourism industry is a core sector for the country representing c.11.8% of the GDP and 12.3% of the total employment.

“

Within the current competitive context, additional innovative gears must be considered into the profitability equation.

Deloitte growth drivers faces this competitive background betting for strategic CapExdeployment focused on meeting demand’s strong requirements, brings forward the sustainability gap within the hotel industry and looks ahead to a relentless investment in digitalization.

“

2Hotel PropertiesOverview of Spain’s main indicators

5Investment & FinancingHotel Market in depth analysis

Hotel properties overall KPI’s have proved resilience, in spite 2018 clouding outlook. Revenue Per Available Room increased by 1.9% 2017-2018 for all room categories. Holiday hotspots have been significantly affected by 2018 one-off factors registering near zero growth while Urban hotspots have played to win, bolstering their business, cultural and leisure positioning, increasing by 2.1% 2017-2018.

“

Is the tourism industry facing a change of cycle or a change of scenario?

2018 Investment outcomes have been positive. Commercial Real Estate investment volume increased by 40%, where hotel properties amounted to 32% (€4,850m) the lion share over the total CRE investment for the first time.

Developers, investors and lenders investment appetite is still very active regardless of their cautiousness in every deal underwriting.

“

3Operating ModelsAgreement Terms &

Main Players

6Main Hotel Hotspots in Spain

Spain’s hotel operating models are walking towards robust business structures becoming part of larger groups, companies and platforms. In this regard, independent hotel operators have shrunken from 49% market share in 2000 to 27% in 2018.

Operating structures will keep evolving to renewed formulas in order to face the hyperactive hotel context.

“

What about Spain’s key destinations performance?

Our in depth analysis is focused on the 6 key hotel hotspots in Spain: Andalusia, Balearic Islands, Catalonia, Canary Islands, Madrid and Valencian Community, exploring more than 30 sub-hotspots. Performance, opportunities and challenges are identified in every sub-market.

“


3

Tourism OutlookFrom a Global Perspective

Worldwide tourism is gaining momentum, 2018 evidences its strength amid a global economic and geopolitical outlook. Spain keeps beating expectations despite deceleration and consolidates as the world’s 2nd

largest destination by both international tourist arrivals and earnings. The Tourism industry is a core sector for the country representing c.11.8% of the GDP and 12.3% of the total employment.

“

”


4

Tourism

Outlook

1

█ Worldwide tourism arrivals registered the

record-breaking figure of 1.4bn in 2018

increasing by +6% when compared to 2017 data, in spite the global economic slowdown.

█ Worldwide tourism growth is two years ahead from projections. UNWTO’s 2010 long-term perspectives forecasted the 1.4bn mark to be reached in 2020.

█ Despite the current international political

and economic context, 2019 projections

are very positive with an expected arrivals

growth between 3%-4%.

█ Total International Receipts amounted to

€1,186bn with a +6.0% growth vs.

2017 data. Tourism has become the world’s third largest export category.

“2018 evidences

the strength of tourism

and it’s leadership amid

the main Global

Economic drivers.

2019 projections keep

positive in spite the

political and economic

uncertainties on the

spotlight.

orldwideInternational Tourism

International Tourism from a global perspective

Worldwide tourism gaining momentum

Source: Deloitte, UNWTO


5

Tourism

Outlook

1

Most visited countries in the world

International Tourism from a global perspective

Worldwide tourism gaining momentum

1st

90m2nd

82.7m

3rd

80m

4th

62.9m

2018 Tourism contribution to the Global Economy

1.404mInternational Arrivals

+6.1% var. 2017

2019F Full Year Growth

+3% - +4%

1.186bnTotal Tourism

Earnings

+5.5% var. 2017

10% GDP

1/10 Jobs

Source: Deloitte, UNWTO


6

Tourism

Outlook

1

Northern Europe 78 million (+0% vs. 2017) 6% World market share

€79 million (+6% vs. 2017)7% World market share

Western Europe204 million (+6% vs. 2017) 15% World market share


Southern – Med. Europe286 million (+7% vs.2017) 20% World market share


Central – Eastern Europe144 million (+6% vs.2017) 10% World market share


Source: Deloitte, UNWTOData: Visitors (Jan 2019) – Receipts / expenditure (Sept 2018)

Southern Europe receives

the 40% of total international arrivals to Europe.

The region has been leading growth with +7% tourism arrivals and +12% earnings from tourism.

The Mediterranean region accounts for the lion’s market share with 20% of the total tourists and 15% over total earnings in the world.

“Europe: International Tourism from a global perspective Southern Europe outperforms its neighbours


7

Tourism

Outlook

1

pain

“Spain consolidates as the

world’s 2nd largest

destination by

both international

tourist arrivals and

earning.

Source: Deloitte, UNWTOData: Visitors (Jan 2019) – Receipts / expenditure (Sept 2018)

Spain: Tourism Industry Analysis

Spain is still beating expectations despite deceleration

█ Spain’s tourism industry growth has experienced a slight deceleration during 2018. Tourism GDP growth rate stood at

+2.0%, in line with the region’s macro-

economic fundamentals.

█ Tourism industry is a core sector for the region’s domestic economy representing

c.11.8% of the GDP and 12.3% of

the total employment.

█ International Tourism arrivals set another record for the 6th straight year reaching

82.7m. However, arrivals growth rate

has also shown a slight downfall with only

+1.1% growth over 2017 data.

█ Total spending by tourists visiting Spain

reached all times high with c.€90bn,

increasing by 3.1% when compared to

the previous year.

Has tourism reached its peak?


8

Tourism

Outlook

1

Tourism expenditure volume consolidates its performance doubling pre-crisis levels of c.€56.5m (2008).

The total expenditure incurred by international tourists that visited Spain during 2018 reached

€89.9bn, registering an

increase of 3.3% as

compared with 2017 data.

2019 (Q1) data

evidences a strong performance with c. 4.1% increase over the same period in 2018, reaching 15.4bn tourism expenditure.

“Spain: Tourism contribution to the Economy

Total Tourism Expenditure

87%Leisure + holiday, Urban &Holiday

6% MICE & Business 7% Others

Since 2010 Tourist Expenditure grew by 8.5%

CAGR2008 20182010

Total Tourism Expenditure (€bn)

Total Tourism Expenditure breakdown

Source: Egatur, INE

Data: Total expenditure accounts for international tourists in all types of accommodation

2006

48.0

2007

54.0

2008

56.5

2009

47.9

2010

48.9

2011

52.0

2012

53.9

2013

59.3

2014

63.0

2015

67.4

2016

77.6

2017

86.8

2018

€89.9bn


9

Tourism

Outlook

10 m

10 m

20 m

30 m

40 m

50 m

60 m

70 m

80 m

90 m

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

Spain: International Tourism demand

Tourism Arrivals and Overnight stays evolution

Source: INE

International Tourists Arrivals

+1.1% in 2018!

+10.5%

+8.7%

Data: Total arrivals accounts for international tourists in all types of accommodation

International arrivals have reached a new record – breaking data for the 6th consecutive year, accounting for 82.7m visitors.

However, 2018 closing figures evidence a slight downfall in demand growth registering only a +1.1% over 2017 data, which stands significantly below the previous years.

This slight deceleration has been driven by the unusual demand behavior during the summer months, and several one-off factors.

2019 prospects are still positive, since Q1-2019 data evidences a 3.8% growth when compared to the same period in 2018, reaching c. 14.2m visitors.

“

Drivers of demand fluctuations: exceptionally good weather in the main origin markets in northern Europe, the slight domestic consumption downfall, alternative destinations renewed competition and an overall unsettled political climate, specially in Catalonia.


10

Tourism

Outlook

130 m

65 m

100 m

135 m

170 m

205 m

240 m

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018


Tourism Arrivals and Overnight stays evolution

International Tourists Overnight Stays

+9.6%+3.6%

-0.4% in 2018!

Towards a new tourism strategy: Despite the slight downfall, the positive

increase of expenditure evidences the consolidation of the sought-after tourism

strategy, based on revenue and not influx.

International overnights confirm the slight slowdown in tourism demand, 2018 data accounted for 223.8m overnights -0.4% when compared to 2017 data.

The recovery of alternative markets such as Turkey and Egypt together with the weakness of the British market or the fall of other relevant European Markets such as Germany have had an impact on tourism overnights.

2019 preliminary Q1 figures are showing a strong performance, with c. 105m overnight stays a 3.5% growth when compared to Q1-2018.

“

Source: INE

Data: Total overnights accounts for international tourists in all types of accommodation


11

Tourism

Outlook

1

Hotels:

Rental housing:

Rest of the market*:

Own property:

By family/ friends:

Rest of the market**:

*:Camping, Rural tourism, Cruises, others.

**: Timeshare properties, house sharing, others.

52.7 m

9.7 m

4.1 m

4.8 m

9.9 m

1.4 m

63%

Market-based Accommodation

Not Market-based Accommodation

Var. (%) 2017-2018

Total International Arrivals by type of Accommodation

62.7%


Tourist arrivals by type of accommodation

Var. (%) 2018-2016

Source: Frontur, INE (Spanish National Statistics Institute)

Data: Data accounts for international tourists in all types of accommodation

0m

10m

20m

30m

40m

50m

60m

70m

Market-Based Not Market-Based

16.1m

International visitors %

64%

12%

5%

6%

12%

2%

-2.3%

-3.5%

-3.5%

-1.7%

+7.2%

+7.2%

+2.6%

+0.2%

+2.7%

+9.5%

+20.5%

+21.1%

-3.4% Var. 17-18

Total accommodation

+9.9%+1.1%100%82.7m

66.6m+2.3%

Var. 17-18


12

Tourism

Outlook

1

2019-2020 Challenges & Opportunities

While Spain continues to climb the rankings of the world’s tourism destinations, a number of opportunities and challenges remain along the way in the country’s hyperactive hotel sector.

Keep an eye on the uncertainties on the spotlight…

Spain has

to keep focusing

on new tourism

strategies in

order to face up

the upcoming

challenges!

“ And capitalise the opportunities ahead…


13

Hotel

PropertiesOverview of Spain’s main indicators

Hotel properties overall KPI’s have proved resilience, in spite 2018 clouding outlook. Revenue Per Available Room increased by 1.9% 2017-2018 for all room categories. Holiday hotspots have been significantly affected by 2018 one-off factors registering near zero growth while Urban hotspots have played to win, bolstering their business, cultural and leisure positioning, increasing by 2.1% 2017-2018.

“

”


14

Main Indicators

2

Hotel Properties in Spain

Main drivers and indicators overview

█ Hotel accommodation in Spain registered c.105.3m visitors (national and international) during 2018, increasing by 1.7% 2017 data and 340.1m overnight stays decreasing by -0.4% 2017 data.

█ Urban destinations are driving a consistent growth in terms of overnights, TOP10 urban hotspots registered and average CAGR (12-18) of c.5.0%, while TOP10 holiday destinations overnights have softened slightly registering c.3.0% CAGR growth (12-18).

█ Hotel supply is positively evolving towards better quality products with a high differentiation component.

o Refurbishments: 185 hotels and c.32,392 rooms.

o New openings: 73 New hotels and 7,182 rooms.

█ 2019-2020 key challenges rely on the de-seasonalisation of some destinations in order to prevent high season demand saturation, poor destination perception by visitors and enable low season months additional revenue generation.

otel PropertiesUrban destinations are gaining momentum

“Hotel properties

tourism demand accounts

for the 64% of the total

market share.

Despite it’s leadership, this

type of accommodation has

to keep shaping it’s

products to face the

hypercompetitive hotel

context.

Source: Deloitte


15

Main Indicators

2

Hotel Properties: Demand

Hotel accommodation demand keeps growing at a moderate pace.

0m

20m

40m

60m

80m

100m

120m

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

National Visitor (m) International Visitors (m)

+1.41% in 2018!

0m

50m

100m

150m

200m

250m

300m

350m

400m

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

National Overnights (m) International overnights (m)

-0.14% in 2018!

Source: INE Total visitors data accounts for national and international tourists in hotel accommodation.

Hotel Accommodation: Visitors (m) evolution

Hotel Accommodation: Overnights (m) evolution

+6.15%+7.10%

+3.97%

+4.39%+7.44%

+2.84%

10

5.3

m

10

3.8

m

99

.8m

84

.4m

34

0.1

m

34

0.6

m

33

1.2

m

27

1.7

m

Tourism demand in Hotel accommodation has experienced a moderate performance during 2018.

Visitors in hotel properties accounted for 105.3m increasing by 1.41% vs. 2017 data and a CAGR 2013-18 of c.4.7%.

On the other hand overnight stays in hotel properties registered a slight downfall of c. -0.14%, not reaching 2017 record-breaking figure of 340.6m.

2019 preliminary data (Jan. – Apr.) is showing a positive performance, with +3.43% growth in terms of visitors and +1.78% in terms of overnights when compared to the same period in 2018.

“


16

Main Indicators

2

Hotel Properties: Demand – Overnight stays evolution

Urban destinations are gaining momentum, registering strong growth figures…

OUTPERFORMING Var. 17-18

1. Malaga +6.0%

2. Seville +5.6%

4. Valencia +4.9%

5. San Sebastián +3.2%

8. Madrid +2.0%

7. Barcelona +2.9%

9. Alicante -1.1%

10. Las Palmas -7.2%

6. Bilbao +3.2%

3. Palma de Mallorca +5.7%

UNDERPERFORMING Var. 17-18

STEADY Var. 17-18

TOP 10 URBAN DESTINATIONS

Base 100: 2012

0.95

1.15

1.35

1.55

2012 2013 2014 2015 2016 2017 2018

Seville

Malaga

Alicante

Las Palmas

Valencia

S. Sebastián

MadridBarcelona

Bilbao

Palma de Mallorca

Overnight stays evolution

Source: INE, DeloitteData: Total overnights data accounts for national and international tourists in hotel accommodation.

How are Spain’s Urban

destinations performing?

overnights evolution


17

Main Indicators

2

Costa del Sol

0.95

1.05

1.15

1.25

2012 2013 2014 2015 2016 2017 2018

Costa de la Luz

Gran Canaria I.

Menorca I.Costa Blanca

Ibiza I.

Costa Brava

Tenerife I.

Costa DoradaMallorca I.

OUTPERFORMING Var. 17-18

1. Costa de la Luz +1.1%

2. Ibiza Island +1.5%

4. Costa Blanca +0.0%

3. Costa Brava +0.5%

UNDERPERFORMING Var. 17-18

STEADY Var. 17-18

And what about

holiday destinations?

overnights evolution

5. Mallorca Island -0.3%

6. Costa del Sol -0.4%

8. G. Canaria I. -7.2%

7. Tenerife Island -1.0%

9 Menorca Island -3.8%

10. Costa Dorada -4.5%

TOP 10 HOLIDAY DESTINATIONS

Base 100: 2012

Overnight stays evolution

Source: INE, DeloitteData: Total overnights data accounts for national and international tourists in hotel accommodation.

Hotel Properties: Demand – Overnight stays evolution

While Holiday destinations evidence a significant slowdown…


18

Main Indicators

2

by type

5* -5*GL

4*1*-2*-3*

by Category

Use-ChangeNew Project

New rooms breakdown

65%

35%

15%

52%

33%

Hotel Properties: 2018 -2019YTD New Hotel Openings

Prime destinations both urban and holiday are gathering investors strong appetite, in this regard, Catalonia and Madrid registered more than 1,000 rooms.

13

942

Balearic Islands10

1,057

Madrid

7

1,069

Andalusia

17

1,738

Catalonia

2

201

Murcia

6

1,148

Canary Islands

7

312

Basque Country

2

459

Valencian community

# hotels# Rooms

“Region”

3

86

Castilla-León

1

47

Asturias

1

15

Cantabria

2

42

Galicia

1

33

La Rioja

1

33

Navarra

Source: DeloitteData: 2019 YTD – May 2019


19

Main Indicators

2

35%

18%

26%

9%

4%8%

14%

69%

17%40

7,243

Balearic Islands

20

2,500

Madrid

33

6,891

Andalusia

31

5,416

Catalonia

6

660

Murcia

22

5,726

Canary Islands

7

638

Navarra

6

805

Galicia

8

1,370

Valencian Community

by type

Total refurb.UpgradingPartial refurb.

by Category

# hotels# Rooms

“Province”

2

189

Basque Country

3

296

Extremadura

2

122

Cantabria

1

136

Aragon2

292

Castilla y León

1

70

Castilla La Mancha

1

38

Asturias

Partial RebrandingMinor rebrand.Minor refurb.

5* -5*GL

4*1*-2*-3*

Hotel Properties: 2018 -2019YTD Refurbishments

Hotel refurbishment has experienced a robust growth during 2018-2019YTD increasing by +49%, the growing competitive context has been the main driving factor.

Source: DeloitteData: 2019 YTD – May 2019


20

Main Indicators

2

€89.6

€72.1

€78.3

€85.3€87.8

€95.2

€104.4

€116.5

€124.7€129.1

€125.2

€53.7

€46.3 €47.8€50.4 €49.5 €50.6

€53.9€58.2

€64.2€68.8 €69.4

€37.2€32.5

€32.9 €34.5 €33.7 €34.6 €36.0

€39.8 €43.1€47.7 €48.8

0.00

20.00

40.00

60.00

80.00

100.00

120.00

140.00

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

5* 4* 3*Source: Deloitte, Exceltur, INEData: Main KPI’s and key data considering 5*,4*,3* hotel categories within Deloitte Hotspots. KPI´s are the average of the destinations selected in each region.

Hotel Properties: RevPAR evolution – Spain

RevPAR growth has experienced a consistent growth underpinned by the strong effort on asset repositioning and positioning, specially in 5* segment where RevPAR has increased by 40% vs. 2008 pre-crisis data.

The strong effort on asset refurbishment and repositioning, together with the entrance of international brands and differentiated products has triggered in a RevPAR maximisation in 5* hotels.

RevPAR gap between 5* and 4* categories in 2008 stood at +67%, whereas this difference in 2018 has increased up to 80%.

4* hotels RevPAR growth has been more steady, this category still has room for improvement specially through CapEx deployment and product positioning.

Mind the gap!RevPAR Evolution3* - 4* - 5* Hotel Categories

-3.0%Var. 17-18

+5.6%CAGR 13-18

+1.0%Var. 17-18

+6.5%CAGR 13-18

+2.3%Var. 17-18

+7.2%CAGR 13-18

+67%5* vs. 4*

+80%5* vs. 4*


21

Operating

ModelsAgreement Terms & Key Players

Spain’s hotel operating models are walking towards robust business structuresbecoming part of larger groups, companies and platforms. In this regard, independent hotel operators have shrunken from 49% market share in 2000 to 27% in 2018.

Operating structures will keep evolving to renewed formulas in order to face the hyperactive hotel context.

“

”


22

Operating Models

3

perating models

█ Spain’s hotel operating models are walking towards robust business structures becoming part of larger groups, companies and platforms. In this regard, independent hotel operators have shrunken from 49% market share in 2000 to 27% in 2018.

█ Hotels in Property and lease contracts are the preferred operating models in Spain’s hotel industry, amounting to 85% of the total rooms operated by hotel chains. Lease contracts are progressively gaining market share increasing by +8.4% vs. 2016 data.

█ Asset light strategies will keep up during 2019, these formulas enable both partners to grow strategically, choosing the right partner in each location and assettypology, avoiding unnecessary financial or RE leverage, and on the other side maximizing the know-how of the hotel management company.

█ Management and lease with a variable component contracts will increase in order to mitigate the risk due to the upcomingcycle change.

How are evolving operating schemes?

Hotel Operating Model

Spain: Groups and Independent Companies evolution


23

Operating Models

3

Unstoppable growth of Hotel groups

Groups dominance is growing slowly but

continuously, already accounting for 73% share

of total Rooms

2000

NOW!

20052010

Independent

Groups

51%

54%

67%

73%

Operating Model: Groups and Independent Companies

The traditional atomization of the sector has bounced back towards robust business structures and groups thanks to the growing role of investors and the high competitiveness of the market.

Source: Deloitte, AlimarketData: 2019 YTD – May 2019


24

Operating Models

3

Operational models in Spain

Large hotel operators, real estate investors and independent operators

Slight tendency of certain operators towards light-asset strategies and models

Traditionally, hotel investors without an operational vocation lease the assets

Fixed and variable mix

New players (Socimis) and greater presence of family offices

Most widespread model among the major international operators

Brand awareness is a key factor

Difficulty of certain European & Spanish investors in sharing management risk

Operating model in growth

It stands out in the urban and Budget segments

Much importance of the brand and direct distribution

Hotel chains

account for

73% over total rooms

Property

Lease

Management

Franchise

Property61%

Lease24%

Management

11%

Franchise

4%16%

57%

27%

Source: Deloitte, AlimarketData: 2019 YTD – May 2019

Operating Model: Spain’s market segmentation

% over Total rooms

Independent

Groups


25

Growth

DriversCapEx , Pipeline, Digitalization…

Within the current competitive context, additional innovative gears must be considered into the profitability equation.

Deloitte growth drivers faces this competitive background betting for strategic CapExdeployment focused on meeting demand’s strong requirements, brings forward the sustainability gap within the hotel industry and looks ahead to a relentless investment in digitalization.

“

”


26

Growth Drivers

4

Is Spain being

competitive?

1 Driver

Future supply: Hotel pipeline analysis

Who is playing

the development

game?

2 Driver

#Smart CapExanalysis based on Spain Hotel supply average age

Are we being

strategic?

3 Driver

LEED, BREEAM and WELL, what is happening in the hotel industry?

Sustainability

matters…

4 Driver

Digitalisation is here to stay!

Welcome

digital era

Deloitte Growth Drivers: Hotel properties levers to capture additional income generation


27

Growth Drivers

4

uture supply: Hotel Pipeline

█ There is an increasing appetite for both hotel development and refurbishment in Spain.

█ Hotel properties projected pipeline from 2019 YTD to 2026, accounts for 242 hotels and c. 47,241 rooms.

█ Based on the different types of works projected as at 2019YTD we estimate c.€5,117m CapEx investment.

New Openings: c. €3,580m

Refurbishments: c. €1,537m

█ The strong commitment with refurbishments during 2015-2018 is expected to be counterbalanced by an increasing interest in full repositioning and new hotel projects for 2019-2026.

Spain’s activity ratio is still below it’s peers

#1 Deloitte Growth Driver: Who is playing the development game?

“Our CapEx

investment approach

has estimated based on

the future hotel

pipeline.

The projected pipeline comprises: New projects, Use-change, total and partial refurbishment, upgrade, rebranding and minor refurbishments.

Source: Deloitte


28

Growth Drivers

4

mart CapEx

█ Smart CapEx Strategy is based on a facial refurbishment or repositioning in order to update the current hotel supply.

█ Spain’s Hotel properties existing supply is obsolete. The Average Age ( since opening or last refurbishment) stands at 8.73 years.

█ Hotel properties lifespan stands at c.10 years, between 0-5 years properties are considered at healthy market standards.

█ According to our #SmartCapEx estimation c.€2,500m would be necessary in order to update Spain’s obsolete hotel supply..

█ The investment on #SmartCapEx (facial refurbishment or repositioning) is considered strategic in order to achieve full potential value.

Is Spain’s hotel supply updated?

Source: Deloitte

#2 Deloitte Growth Driver: Are we being strategic?

“Our #SmartCapEx

investment approach

has been estimated

based on the current

Average Age (yrs. Since

opening or last

refurbishment) of

Spain’s existing hotel

properties.


29

Growth Drivers

4

█ A very significant increase in the hospitality certifications is foreseen in the next 5 years. The number of registered and certified hotels in Spain amounts to 60, representing only, 0.35% of the hotel inventory in Spain.

█ Corporate Social Responsibility, companies must assume this sustainability commitment in relation to the care of the environment to respond this new tourism trend.

█ Access to financing. Demand for sustainable assets is growing among banks and institutional investors.

█ Sustainable buildings are capable of achieving higher income and higher market values.

█ Improve comfort and health of its occupants.

█ Less energy and water consumption and less operational expenses.

“Based on the Global

Sustainable Tourism

Council research, 90%

of the travelers consider sustainability important when choosing a hotel.

Source: Deloitte, Global Sustainable Tourism Council.

ustainability & Wellness

#3 Deloitte Growth Driver: Sustainability matters…


30

Growth Drivers

4

█ In a highly international competitive context, it is important to understand in which digital maturity stage is the Spain’s hotel supply in order to implement strategies to become more competitive.

█ Digital has the ability to rewire organizations to be fast, granular, connected, and surprising, aspects that drives growth.

█ In order to thrive under a changing and disruptive hotel context, it is vital to digitally transform the organization pushing for further growth by promoting three key levers: efficiency, customer experience and revenue increase.

█ Renowned operators such as: Marriott, Starwood and Wynn are some examples of companies implementing digitalization strategies in their hotels.

“We are in the

Digital Age where

customer engagement is expected, relationships are in real-time, choice is infinite, delivery is on demand, change is constant, and technology enables everything we do.

igital transformationIts time to amplify our digital transformation story

#4 Deloitte Growth Driver: Welcome Digital Era

Digitalization is here to stay


31

Investment

& Financing

Markets

Is the tourism industry facing a change of cycle or a change of scenario?

2018 Investment outcomes have been positive. Commercial Real Estate investment volume increased by 40%, where hotel properties amounted to 32% (€4,850m) the lion share over the total CRE investment for the first time.

Developers, investors and lenders investment appetite is still very active regardless of their cautiousness in every deal underwriting.

“

”


32

Investment & Financing

5

Investment & financing Markets

The strong tourism dynamics in spite of the moderate economic growth have sustained investors interest

█ Hotel sector developers, investors and lenders investment appetite is still very active regardless of their cautiousness in every deal underwriting.

█ EMEA investment allocation accounted for 30% of the worldwide activity, registering + 47% growth vs. 2017 data.

█ Hotel properties in Spain consolidate their popularity accounting for 32% (€4,850m) the lion share over the total CRE investment.

█ After 6 years of buoyant growth, single asset deals decreased (nº of properties) during 2018, with a y-o-y reduction of 33%, while Corporate deals and portfolio transactions are gaining momentum representing 63% and 13% respectively over the total hotel investment volume.

█ The good news is that the average value per key increased by 24% vs 2017 reaching c. €198k/key.

nvestment marketAre we facing a change of cycle or scenario?


33


5 32%

10%

13%9%

5%

4%

20%10%

10%

3%

43%

9%

4%

22%

12%

9%

9%

Source: Real Capital Analytics

# European CountryTotal Investment

(€m)

Hotel (%)

over total

1 United Kingdom 50,513 13% 6,707

2 Spain 15,118 32% 4,850

3 Germany 46,660 9% 4,061

4 France 28,694 5% 1,455

5 Netherlands 11,322 10% 1,179

6 Italy 6,847 10% 651

7 Ireland 3,186 20% 622

8 Portugal 2,824 12% 340

9 Switzerland 2,827 9% 242

10 Sweden 5,427 4% 223

11 Austria 2,285 9% 213

12 Czech Republic 2,233 9% 208

13 Russia 1,640 10% 168

14 Finland 3,697 4% 139

15 Belgium 3,671 3% 107

TOTAL 186,944 21,165

Hotel Investment Volume (€m)

per country

Hotel Investment over total Commercial Real Estate investment in each country.

>2,000

1,000 – 2,000

500 – 1,000

300 – 500

100 – 300

<100

Hotel Investment Volume (€m)

Investment Market: European investment volume

Rising popularity of the hotel investment market in Europe

Spain is still on the spotlight ranking second in terms of Hotel Investment, totaling €4,850m.

UK and Spain keep gaining momentum as the most attractive markets with a y-o-y growth of 14% and 57% respectively.

“


34


5

2018 has beatenexpectations, European cities have reached their highest capital values (c. €286k/key) since 2007 peak.

Although most of European cities’ recovery path started in 2016, European cities such as Paris, Munich or Lisbonamong others, have achieved their peak rates in 2018.

Madrid is still a -1% below pre-crisis levels, 2018 has not been a good year for Barcelona, experiencing slight decrease (-4.9%) affected by its political context.

7.3%

1.2%

0.6%

(3.5%) 5.3% 2.1% 4.5% (4.9%) 4.4% 5.7%

2.8% 4.9%

3.6% 5.6%

8.8% (4.4%)

Source: Deloitte, HVS

Max. Min (2016-2018)

2017 2018

Capital Valu

e p

er

key (

2017-2

018)

723

-

€200k

€400k

€600k

€800k

Pari

s

Lo

nd

on

Zü

ric

h

Ge

nev

a

Ro

me

Flo

ren

ce

Am

ste

rda

m

Ba

rcelo

na

Mila

n

Mu

nic

h

Co

pen

ha

ge

n

Mad

rid

Eu

rop

e

Du

blin

Lis

bo

n

Sto

ck

ho

lm

2.44%▲ 41 bps

2.44%▲ 41bps

Cap

ital

Val

ues

Gro

wth

(%

)20

17-2

018

Cap

ital

Val

ue

per

key

Tre

nd

200

6-2

018

10 Year Bond

2017-2018(12th June

2019)

Yield 2019 – Dif. 10 years bond 346 bps 580 bps260 bps372 bps 382 bps370 bps 479 bps396 bps 396 bps396 bps 421 bps431 bps 443 bps47 bps495 bps

Cap. Value (€K/key)

0.87%▲ 54 bps

0.12%▲ 77 bps

-0.23%▲ 72 bps

0.32%▲ 75 bps

-0.06%▲ 73 bps

0.58%▲ 87 bps

0.04%▲60 bps

0.65 %▲135 bps

593 507 424 424 408 410 333 347 325 290 320 288 220 237

-0.46%▲ 51 bps

-0.19%▲ 69 bps

€800k

€600k

€400k

€200k

-0.46%▲ 51 bps

2.44%▲ 41 bps

0.58%▲ 87 bps “

Investment Market: Prime Capital Values in Europe


35


5750 576 519 607 932

2,702 2,145

3,090

4,850

1,460 1,056

544 807

2,520

5,313

4,895 2,295

4,527

644

687

365

867

2,297

1,894 3,769

3,168

2,765

1,467

591

571

751

2,242

1,263

660

651

1,524

150

279

88

120

596

674 930

1,630

1,452

4,470

3,189

2,087

3,151

8,587

11,845

12,398

10,834

15,118

-

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

2010 2011 2012 2013 2014 2015 2016 2017 2018

Total (€m)

Logistic

Retail High Street

Retail Shopping Centre

Offices

Hotels

Source: Deloitte

Total Investment volume by Asset Class (€m)Commercial Real Estate

investment volume increased by 40% over the last year.

Corporate deals represents 36% of the total CRE investment volume in Spain during 2018.

“

2,363 2,145 2,117 1,788

339 -

973

3,063

7,319 8,403 7,092

7,889

1,824 1,850

652

2,379

11,845 12,398

10,834

15,118

2015 2016 2017 2018

Other corporate deal

Other asset deal

Hotel corporate deal

Hotel asset deal

Corporate deal vs Asset deal (€m)

+57%

Investment Market: Spain CRE investment volume

Record breaking year for hotel properties with +57% increase over 2017 data

+40%


36


5

Commercial Real Estate:

2018

2017

2016

Offices40%

Retail Shopping

Centre30%Retail High

Street5%

Logistic8%

Hotels

17%

Offices21%

Retail Shopping

Centre29%

Retail High Street

6%Logistic

15%Hotels

29%Offices

30%

Retail Shopping

Centre18% Retail High

Street10%

Logistic10%Hotels

32%

(€m)

Hotels total investment 4,850

Offices total investment: 4,527

Shopping Centre total investment: 2,765

High Street total investment: 1,524

Logistic total investment: 1,452

Investment Market: Spain CRE investment volume

Hotel properties account for 32% share over the total Commercial Real Estate investment, and progressively gaining share among the rest of typologies.

Source: Deloitte


37


5

2016 2017 2018

Single Asset

24%

Corporate Deal

63%

Portfolio

13%

Single Asset

57%

Corporate Deal

31%

Portfolio

12%

Single Asset

58%

Portfolio

42%

(€m)

Single Asset 1,248

Portfolio 897

Corporate Deal -

Total 2,145

(€m)

Single Asset 1,753

Portfolio 364

Corporate Deal 973

Total 3,090

(€m)

Single Asset 1,178

Portfolio 610

Corporate Deal 3,063

Total 4,850

Investment Market: Hotel Properties investment volume

Single asset transactions lessen while hotel portfolios and corporate deals are gaining momentum.

Source: Deloitte

After 6 years of buoyant growth, single asset deals decreased during 2018, with a y-o-y reduction of 33%.

During 2018 single assets have represented 24% of the total investment volume, totaling 44 individual properties, decreasing by -20% vs. 2017 data, on the other hand in terms of room sold, 2018 registered a 27% increase vs. 2017.

Corporate deals and portfolio transactions are gaining momentum representing 63% and 13% respectively.

“


38


5 (1) Sustainable LTV to face the debt service with high funding costs (A bigger LTV will mean a bigger debt service)(2) Balloon needs to cover the high funding costs during the loan´s life. (a smaller balloon will mean a bigger annual debt service).

Estimated balloon for a 5-7 years loan.

Main

Conditio

ns

LTV (1)

Upfront Fee

Spread

45-50% 45-55%

2015 2016

150-250bps 125-175bps

225-400bps 200-250bps

Framework

Main Players

Balloon (2) 60-80% 65-100%

Credit Access Constraints

Financing Upturn

Institutional Investors / Debt

Funds

Banking / Insurance Companies

2013-14

50-60%

100-150bps

175-225bps

70-100%

Location, category, performance, type of operating contract (and mandatory period duration)and hotel brand, significantly impact on financing terms.

2018

50-65%

90-150bps

150-225bps

70-100%

2017

50-60%

75-150bps

135-225bps

70-100%

Alternative lenders+

2019 YTD

50-70%

75-150bps

135-250bps

75-100%

Source: Deloitte

Financing Activity: Yielding assets

Increasing lending appetite due to the strong tourism fundamentals


39

The Hotel Property Handbook 4.0Spain 2019

To request the expanded edition, please contact Esther Sanchez, email: [email protected]

For further information…

Request the Expanded EditionContent (236 pages):

1. Tourism Industry Outlook: Tourism Industry activity from a global perspective.

2. Hotel Properties: Overview of Spain’s main indicators (Supply, Demand, KPIs).

3. Operating Models: Key terms & typologies and main players.

4. Growth Drivers: Are we being competitive? CapEx, Digitalization, Sustainability…

5. Hotel Properties investment and Financing analysis

5. Hotspot In Depth Analysis: 6 key hotel hotspots in Spain - Andalusia, Balearic Islands, Catalonia, Canary Islands, Madrid and Valencian Community, exploring more than 30 sub-hotspots.

6. Hotel Properties key investment factors.


40

The Hotel Property Handbook 4.0Investment & Financing KeysSpain 2019

#TheHotelPropertyHandbook

www.deloitte.com/es/financial-advisory/the-Hotel-property-handbook For more information, please, visit www.deloitte.es

Marc MolasDirectorFinancial Advisory [email protected]

Alberto Valls, MRICSHead of Real EstateFinancial Advisory [email protected]

Ignacio HerreroAssociateFinancial Advisory [email protected]

Viviana OteroAssistant ManagerFinancial Advisory [email protected]

Mónica MartínAssistant Manager Financial Advisory [email protected]

José María EspejoDirectorFinancial [email protected]

Ignacio AllendeDirectorFinancial Advisory [email protected]

Africa PalauDirectorFinancial [email protected]

Fernando BaldellouPartnerFinancial Advisory [email protected]

María LuciaAssociateFinancial Advisory [email protected]

Claudia MuñizAnalystFinancial [email protected]

Rafael ArcasPartnerFinancial Advisory [email protected]

Nabil LamartySenior ManagerFinancial Advisory [email protected]

Guillermo DomingoManagerDeloitte [email protected]

Rocio AbellaPartnerDeloitte [email protected]

Luís González, MRICSSenior ManagerFinancial Advisory [email protected]

Patricia Plana Assistant ManagerFinancial Advisory [email protected]

Jordi SchoenenbergerPartnerTHS Industry [email protected]


41

Documents

The Hotel Property Handbook 4...The Hotel Property Handbook 4.0 Investment & Financing Keys Executive Summary Spain 2019 Financial Advisory I Real Estate & Hospitality June 2019 @