Market outlook - recent deals and future trends

1. lsh.co.uk
Liverpool Development Update
Hotels
29 September 2016
Hugh Anderson

2. lsh.co.uk
7 COCHRANE STREET
GLASGOW
lsh.co.uk
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

3. lsh.co.uk
7 COCHRANE STREET
GLASGOW
lsh.co.uk
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

4. lsh.co.uk
7 COCHRANE STREET
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lsh.co.uk
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

5. lsh.co.uk
7 COCHRANE STREET
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lsh.co.uk
KEY PERFORMANCE INDICATORS FOR THE
LIVERPOOL MARKET
2015 2014 2013
Occupancy 74% 73% 69%
Average Room Rate £74.00 £73.00 £73.00
RevPAR £55.00 £53.00 £50.00

6. lsh.co.uk
7 COCHRANE STREET
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lsh.co.uk
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)

7. lsh.co.uk
7 COCHRANE STREET
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lsh.co.uk
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.

8. lsh.co.uk
7 COCHRANE STREET
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lsh.co.uk
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

9. lsh.co.uk
7 COCHRANE STREET
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lsh.co.uk
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

10. lsh.co.uk
7 COCHRANE STREET
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lsh.co.uk
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

11. lsh.co.uk
7 COCHRANE STREET
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lsh.co.uk
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

12. lsh.co.uk
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lsh.co.uk
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

13. lsh.co.uk
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lsh.co.uk
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

14. lsh.co.uk
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lsh.co.uk
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”

15. lsh.co.uk