Heribert Gangl, K

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Changed rules of the game for hotel owners and
investors

• Heribert Gangl, KP Budapest
• NAPI Conference Budapest, 19 May 2009

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Table of Content

• About Kohl Partner
• Actual market environment
• Changes and opportunities for hotel owners
• Changes and opportunities for hotel investors
• Conclusio

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About Kohl Partner

• Independent and internationally operating
  consulting company specialized in the hotel and
  tourism industry
• Leading tourism consulting company in Austria
  with more than 25 years of experience
• 8 offices in 6 countries (Villach, Vienna,
  Munich, Stuttgart, South Tyrol, Sofia, Bucharest
  and Budapest)
• International team with 45 tourism experts and
  assistants

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Quality is our Mission

• Kohl Partner is
• Winner of the Austrian
• Quality Award 2006
• Certified according to ISO 9001
• Affiliated member of the UNWTO (World Tourism
  Organisation)

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Kohl Partner USPs

• Austrian tourism know-how combined with local
  expertise
• Detailed knowledge of the complex processes in
  tourism
• Strong reputation and excellent industry
  contacts
• More than 25 years of international experience
• Services for small, private and large,
  international hotels

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Our Customers
Public Authorities
Private sector

• Global organizations (e.g. World Tourism
  Organization, EBRD, UNDP)
• National authorities (e.g. Tourism Ministry)
• National tourism organizations
• Representative bodies of Regions Republics
• Municipalities

• Entrepreneurs and business owners
• Investors
• Project developer
• Construction companies
• Banks and financial institutions
• Interest groups
• Private organizations (e.g. hotel associations)

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Kohl Partner Services for the hotel industry

• Asset Management and Advisory
• Market Intelligence Services
• Feasibility Study
• Project (Concept) Evaluation
• Operator Selection
• Hotel Valuation
• Hotel Transaction
• Turn Around Management
• Other services

Hotel Industry
Destination Development
Tourism Infrastructure
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• Real estate advisor and project management
  company for
• domesticand international clients in Hungary and
  the CEE region
• Brokerage a real estate agency firm with only
  the finest, exclusive properties
• Project management building services for the
  perfect quality buildings on time
• Lobbying a specialist team, well-connected with
  the municipalities, to assist you
• Mediation creating a holistic approach to
  accelerate your project to the utmost

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Table of Content

• About Kohl Partner
• Actual market environment
• Changes and opportunities for hotel owners
• Changes and opportunities for hotel investors
• Conclusio

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Actual market environment

• Decreasing tourism demand in Europe, especially
  in city and business destinations like Budapest
  or Vienna
• Dropping occupancy and ADR lower revenues and
  yields, especially in the upscale 5/4-star
  segment
• Decreasing expenditures (business and leisure
  travellers) affecting the total service chain
  especially additional guest expenses are reduced
• Lower priced budget- and midscale products
  benefit
• Well-positioned and managed hotels are more
  resistant and better performing

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Actual market environment

• Tourism sector generally proves to be very
  resistant and is currently less vulnerable than
  other real estate sectors like offices, logistics
  or shopping center
• Tourism industry is usually affected with delays
  (we expect 6 months) however experience shows
  that the tourism sector is able to recover fast
• Desire to travel is not affected (eg 9/11 or
  Sars) but concerns about who can (or wants) to
  afford it
• EMEA hotel transaction volume down by 81 in 1Q
  2009 reaching the level of 2003 domestic
  investment activities are dominant

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Actual market environment

• New hotel developments are slowed down but the
  market is still alive
• Project financing currently remains biggest
  challenge
• Political framework conditions in Hungary are
  rather unfavourable (e.g. tax increase, announced
  real estate tax, cut back on social benefits,
  etc.)
• Tourism in Hungary in general is not well
  organized lack of professional tourism
  organizations and efficient structures to support
  tourism and related businesses

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Table of Content

• About Kohl Partner
• Actual market environment
• Changes and opportunities for hotel owners
• Changes and opportunities for hotel investors
• Conclusio

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Changed rules for hotel owners

• Operational costs are increasing, affecting the
  operator performance and resulting in decreasing
  yields and asset values for the owner
• Many smaller operators are having problems with
  their cash-flows flexibility from the
  owner-side required
• Re-Evaluation (and negotiation) of operator
  contracts
• Open and honest communication between operators,
  owners and banks essential
• More involvement required - demand detailed
  business plans for the next two years and review
  them on a monthly basis

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Opportunities for hotel owners

• Professional asset management controlling,
  monitoring and benchmarking makes the difference
• Understand your business and collaborate closely
  with your operator jointly searching for
  possibilities to increase profitability
• Internal evaluation and re-structering - review
  your business model and operational concept
• Know the industry mechanism - dont cut back on
  sales and marketing expenses and maintain rate
  levels
• If you have a good operator agreement stay with
  it dont loose a reliable long-term tenant for
  your asset

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Table of Content

• About Kohl Partner
• Actual market environment
• Changes and opportunities for hotel owners
• Changes and opportunities for hotel investors
• Conclusio

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Changed rules for hotel investors

• Increased equity capital demand loan-value
  ratio of max. 55 -60 when financed locally
• Rental agreements vs. management contracts
  without guarentees
• Contracts without guarentees require top
  renowned, international operators like Hilton,
  Intercontinental, Marriott, Accor, Starwood
• Professional and profound project due diligence
  crucial
• Professional hotel concept and management
  critical
• Investment optimization (hotel facilities, room
  sizes) important
• Closer cooperation of all involved project
  proponents (investor, constructor, operator,
  consultants) required

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Opportunities for hotel investors

• Decreased project costs (especially land and
  construction costs) attractive opportunities
  for investors with strong financial background
  and equity capital
• Distressed sales currently limited as
  valuations and prices are still too high but keep
  watching
• Demand from the operator side is high, especially
  for their budget- and midscale brands
• Lack of modern, quality hotels in Hungary and
  other CEE countries especially in secondary
  cities like Györ, Kecskemét, Miskolc, Debrecen,
  etc.
• Spa, wellness and health tourism is one of the
  fastest growing tourism segments in CEE -) good
  market opportunities

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Table of Content

• About Kohl Partner
• Actual market environment
• Changes and opportunities for hotel owners
• Changes and opportunities for hotel investors
• Conclusio

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Conclusio

• Back to basics or renaissance of common sense
• Location, location, location even more important
  again
• Professional concept and partners are a must
• Profound market and industry know-how inevitable
• Lack of quality hotels in Hungary attractive
  market opportunities remain
• If you are convinced of your operator be flexible
  and patient support your operator and jointly
  manage the current turbulent times
• Its time again for realistic yield expectation

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Thank you!
Kohl Partner Budapest Kft. Kölcsey u. 4. 1085
Budapest Hungary T 36 1 235 00 70 F 36 1 301
0793 E budapest_at_kohl.at H www.kohl.at
Kohl Partner Wien GmbH Wallerstrasse 3 1010
Vienna Austria T 43 1 532 6335 F 43 1 532
6335-20 E wien_at_kohl.at H www.kohl.at