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Liverpool Development UpdateHotels29 September 2016

Hugh Anderson

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Introduction Based in the North West - Heads up LSH’s specialist hotel team 20+ years experience in hotels/commercial property Specialisms include:

Sales & acquisitions / Development advice / Operator searches / Franchise agreements / Hotel management contracts and leases / Strategic asset management / Hotel valuations

Work with: Hotel funds / Private operators and investors / Banks /

Developers / Institutional investors / Private equity companies / Corporate brands

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THE PROVINCIAL HOTEL MARKET Sustained growth in the regional hotel sector in 2016 Brexit - uncertainty has raised concerns in the transactional and

lending markets - however trading fundamentals remain robust Strong development pipeline in key provincial cities including

Liverpool Hospitality remains a key sector for growth, employment and

overseas earnings in the UK 6th largest contributor to export earning 4th largest employer – 4.49 million

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LIVERPOOL Between 2012 and 2016 Liverpool saw 23 new hotels with 1,946

rooms Primarily the increase has been across two market segments

Budget (39%) – 6 hotels – 766 rooms 4 Star (44%) – 7 hotels – 849 rooms 12% in the Aparthotel sector – 6 hotels – 241 rooms.

Represents an increase in supply of c.22.8% over the 4 years

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KEY PERFORMANCE INDICATORS FOR THELIVERPOOL MARKET

2015 2014 2013

Occupancy 74% 73% 69% Average Room Rate £74.00 £73.00 £73.00 RevPAR £55.00 £53.00 £50.00

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LIVERPOOL Occupancy for the 7 months to July - approximate increase of 2% Average room rate in the period - broadly in line with 2015, although

RevPAR has seen growth of 3%. 6 new openings in 2015 with 331 new bedrooms absorbed well into

the market Continued growth in demand and stronger mid-week business Key Performance Indicators have generally showed positive growth

despite increasing supply. (source: Liverpool City Council)

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HOTEL PIPELINE AM:PM Market snapshot – identifies 50 potential hotels in the pipeline,

with 3,738 rooms Market forces and viability will continue to impact on delivery of new

hotels Liverpool reflects the UK trend of stronger Budget and 4 Star pipeline However, Liverpool has seen significant growth in the serviced

apartment market and the apart-hotels – Signature Living, Adagio, Staybridge, Staycity etc.

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HOTEL NEW ENTRANTS

Pullman Liverpool Hotel 4 star, 216 bedrooms £26m build cost

Shankly Hotel 4 star, 60

bedrooms Boutique

Aparthotel

DoubleTree by Hilton 4 star, 87 bedrooms £21m build cost

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HOTEL PIPELINE – 2017/18

EasyHotel Liverpool Budget, 77 bedrooms Due Jan 2017

StayCity Aparthotels

202 Apartments Due Dec 2017

Martins Building 5 star, 227 bedrooms Principal Hotel Due 2018

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RECENT DEALS

209 bedroom mid market hotel

August 2015 - £13.75m

subject to a lease to Accor, investor return in excess of £1.04m

151 bedroom 4 star hotel

June 2015 - £13m Purchase price

devalues to around £86K/bed representing a yield of c. 8%

110 bedrooms 4 star unbranded hotel

August 2015 - £13.8m Purchase price devalues

to around £125K/bed representing a yield of c. 6%

Novotel, Liverpool One

Hotel Indigo Hard Days Night Hotel

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CURRENT DEAL STRUCTURES Management Agreements and Franchise deals - mainstay for hotel

groups such as Marriott, Rezidor, Hilton, Accor, Intercontinental Hotel Group (IHG), Starwood etc.

Franchise model preferred option Third party ‘manager’ route is now commonplace More creative deal structures from brands – key money Straight forward lease opportunities more limited

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HOTEL DEVELOMENT CHALLENGES Fundamentals remain – Location – Branding – Market Performance New development must comply with international brand standards

and fire life safety requirements Upward pressure on build costs and land values Development costs will impact upon achieving an acceptable profit

margin Development funding remains challenging Brexit uncertainty Development underpinned by future earnings potential or trading

performance

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OUTLOOK The market for good quality regional hotels – marked improvement in

the last 2 years 2015 saw an unprecedented level of deals at over £9 billion –

Dominated by large portfolio transactions Single asset deals active – but more limited due to lack of available

stock 2016 so far has seen deal volume of c.£2.1 billion – 70% down –

Year end expectations £5.5 billion – 63% down 2017 - Expected to be more subdued – with perceived “risk”

increasing the divide between good quality core hotels and more secondary assets or markets

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OUTLOOK - 2017 PWC latest forecast for Occupancy – 2016 = +1% and 2017 =

+0.5% reflecting Liverpool’s current trend PWC latest forecast for ADR (Average Daily Rate) – 2016 = +2.4%

and 2017 = +1.8% Consumer and Corporate sentiment? Ability of key markets to absorb

new supply? Uncertainty? UK assets cheaper to overseas Investors vs lower UK

economic growth Generally – hotel market sentiment is one of “Cautious Optimism”

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