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07 Mar 2017
Berlin, 6th March 2017 – Summary from Day 1
The 20th International Hotel Investment Forum began today at the Hotel InterContinental Berlin, Germany. Kerry Gumas, President and Chief Executive Office, Questex LLC welcomed over 2,000 delegates from over 80 countries to the conference. Gumas outlined that the programme for this year’s event was split into three distinct days; day 1 would focus on rethinking hotel investment over the last 20 years, day 2 would examine the various business models across the industry and day 3 would explore innovative in its various forms with the hospitality sector.
Providing the economic outlook was Roger Bootle, Chairman, Capital Economics who started his presentation stating “the world economy was set reasonably ok”. However, looking to the US, he predicted that President Trump’s promise of an increase in spending and a reduction in taxes would lead to a surge in borrowing and an increase in government debt. Further uncertainties for the US include the rising dollar and whether Trump will stay the course of his term in office.
Looking to the Eurozone, Bootle noted major divergences between countries; Ireland and Spain showing particularly strong growth whilst Italy had very little. He referenced the various significant political events on the horizon and said; “I can’t remember a time so fraught with political risk” and also noted that “if there is a fracturing in the Eurozone, it is likely to spread”. Looking at the UK, Bootle noted three quarters of growth at a rate of 0.6% and reasons to be optimistic although inflation is increasing and earnings don’t look set to match this increase which will “result in a squeeze on people’s real incomes”. Looking specifically at the City of London he said that it would “lose a bit of business and some jobs, but it will be marginal. Its position will remain strong”. Looking at Europe he said “the last thing Europe needs now is stability, because stability means stagnation” and he concluded by stating that in his opinion “interest rates were going to go up sooner, further and faster” than widely predicted.
The next session was 20/20 Vision: Looking Back 20 years, Looking Forward 20 Years hosted by Michael Hirst OBE, Consultant, CBRE Hotels, in conversation with Alison Brittain, Chief Executive, Whitbread and Richard Solomons, CEO, IHG. Hirst started with a retrospective look at their organisations and Brittain highlighted that “Whitbread was born in 642 to brew beer and we are still brewing, albeit coffee”. Both Brittain and Solomons hail from the banking industry and Hirst asked what skills they felt they had bought with them from this industry?
Brittain responded that she had experience across commercial, corporate and retail banking and these areas bought different skills but the retail banking side provided knowledge in high street management skills, digital technology, procurement and cost management.
Both Solomons and Brittain are non-executive directors at M&S and Hirst asked what value they bought to this role. Both agree that the impact of digital and the challenges faced by any global franchise business are similar and therefore there were lessons to learn from the retail industry. Brittain said she can “bring independent experience and also gain a huge amount of insight. Each industry has the same problems but framed differently”.
When asked about the significant changes IHG has faced over the last 20 years, Solomons said the decision to adopt an asset light approach had been one which was “partly about returns but a lot about focus”. He also said that the technology change was huge and thirdly that there was now a real focus on guests and IHG were developing brands around guests. He said IHG had seen its highest level of openings since 2007/2008.
Asked about the future of Whitbread, Brittain said they were “happy with our structure”. Whitbread are very unique and own and manage, either by freehold or leasehold, all of their properties. Brittain believes this is how they manage their service proposition. Whitbread currently have 85,000 new rooms scheduled by 2020.
On expanding their brand offering, Solomons said “it’s really important we continue to have brands that stand for something. we don’t want another “me too” brand – it’s got to deliver something to the marketplace”.
Asked about what they predicted was the biggest changes to the industry in the coming 20 years, Brittain said “artificial intelligence (AI) and robotics” and Solomons said technology, specifically mobile. IHG have seen a growth from $0 – $1.6m in 5 years of their mobile business. Solomons added “technology lets you own the guests”.
European markets that operate similarly to the UK are growth prospects for Whitbread and Germany is a key focus. Brittain felt they were never going to the get to the scale required to operate effectively in Asia so they pulled out of the region.
10% of the IHG pipeline is Europe, specifically Germany, UK and Russia. China is also a key growth market. “we have cycles, we have ups and downs, and what is really important is taking a long term view” said Solomons.
The next session on the programme was Hotel Investment Today, a collection of presentations from industry experts followed by a discussion. Starting the presentations was Robin Rossman, Managing Director, STR who provided the hotel performance trends. Salient points included that 2016 had been positive generally, in terms of RevPAR growth, but areas that had been affected by terrorism were clearly visible and suffering. 2017 is expected to be a good year with hot markets including Amsterdam, Barcelona, Dublin and Madrid, recovery markets that are seeing stabilisation include Brussels, Moscow, Paris and Milan and over supply is affecting London. Edinburgh, Manchester and Frankfurt. Demand significantly outpaces supply in Barcelona.
Jamie Chappell, Global Business Director, Horwath HTL provided delegates with insight on hotel investment in the global economic and political climate and stated that 2016 was the third strongest year on record in terms of hotel transactions. He said that “banks are still lending, private equity is dropping off but we’re seeing a significant increase in funds, particularly in Europe, who are chasing after assets”.
Andreas Scriven, International Managing Director and Managing Director Consultancy, Christie & Co discussed consolidation and M&A activity noting that “hotel development will shift from mature to emerging markets” and that we will see “significant capital coming from Asia and Middle East fuelling M&A deals” along with “pressure from industry disrupters”. Interestingly he foresees a “transformation in booking behaviour with major investment requirements”. He concluded by saying “there is no end in sight for consolidation”
Philip Ward, CEO Hotels and Hospitality Group EMEA, JLL concluded the presentations with insight into cross-border investment. He noted “China has increased investment in the hospitality sector by 80% from 2012 to 2016” and urged us all to “remember these global trends have been positive”. He felt there was renewed interest in the hospitality industry from the Middle East - particularly upscale, luxury assets in major markets. Having just visited South East Asia, he saw that the region was very active. He also said that “US funds were showing an interest in the UK and Spain” and that overall there was “strong appetite and strong demand, a very positive outlook”.
Rossman felt alternative accommodation, including hostels, would be the most significant change to the hospitality industry in the next 20 years. Scriven noted the resilience of the sector and how it reinvents and reincarnates itself continuously. Ward noted that “the emergence of hotels as a mainstream real estate asset and the development of lodging REITs” has been one of the most significant changes to the industry over the past 20 years. All speakers agreed that the sector was experiencing a blurring of previously clear boundaries and responding to this would be a challenge for the future.
The second annual HAMA Europe 2017 Asset Management Achievement Award was then presented to Chris Pfohl from Pyramid Hotel Group & Angelo Gordon by Theodor Kubak, President, HAMA Europe Chapter, Senior Investment Manager, Union Investment and Chad Sorensen, Partner, CHMWarnick.
The next session, Investors on the Spot: Updating the Fundamentals of hotel Investment, was moderated by Nick van Marken, Global Head – Hospitality, Deloitte in conversation with Coley Brenan, Partner, Head of Europe, KSL Capital Partners, Zachary Schwartz, Vice President, European Hotels, Cerberus Capital, Sanjay Singh, Managing Director, Fico Corporation and Desmond Taljaard, Managing Director – Hotels, London & Regional. The session started positively with Singh saying he was “reasonably confident in the UK as an investment target for the next 6-12 months’ time”. Taljaard said the EU referendum results in the UK created a “4th quarter dip as people started to get nervous but this had now stabilised”. Brenan noted that “the refinancing risk today was very different to that seen in the last cycle”. When asked about the importance of a brand, Taljaard replied that he would flip the question around and ask “what value the brand can bring to the hotel?”. He feels that the economics of branding will start to be questioned but “if brands can find a way to keep the costs of the value they add in balance then there would be a place for them”. The debate turned to the OTAs and Taljaard said that he felt people needed “a lot more weaponry” in the war with OTAs.
The next session saw the presentation of the IHIF Lifetime Achievement Award 2017 to Arne Sorenson, President and Chief Executive Officer, Marriott International, followed by an interview with Tanya Beckett, business journalist and broadcaster. After receiving his award, Beckett asked Sorenson about the recent acquisition of Starwood by Marriott. Sorenson said the deal was “a starting point for something we have to build. We need to create something better, not just bigger, than what there was before”. The key driver for the acquisition was a need to create an “eco-system of loyal customers with whom we can develop great relationships which would allow us to protect and grow our business.” Sorenson understands that “people want experience today, more than things, and are constantly looking for better value”. Marriott have 90,000 hotel rooms opening in 2017 and currently run a $250bn property portfolio across 30 brands. Asked about the biggest threat to the industry, Sorenson said this was “the global wave of populism” and he feels Hilary Clinton lost the US election, rather than Donald Trump winning it. Sorenson has a “strong sense that immigration and refugees is not an area we have consensus on” and he is nervous of the trend that “too many countries in the world, including my own, are turning too far inward”. He feels strongly that it needs to be communicated that people are welcome to the USA and notes that 10% of GDP is driven by travel.
The following session was The Next 20 Years: A Collective Look at the Hospitality Investment Landscape moderated by Cameron Cartmell with Jim Abrahamson, Chairman and CEO, Interstate Hotels & Resorts, Cody Bradshaw, Senior Vice President and Head of European Hotels, Starwood Capital Group, Tim Helliwell, Head of Hotels, Barclays Bank and Hubert Viriot, CEO, Yotel. Bradshaw commented: “Brands need to go overhead light as well as asset light. Cost synergies are subsidising many of these deals, but there's no trickle down in cost savings to owners. My prediction is that Google is going to be a real disruptor in this space. In the next 20 years something has got to give- the brand fees are not that different to the OTA fees”. Bradshaw also noted that although much has been made of millennials as shapers of the industry, they have “significantly less disposal income than previous generations due to high levels of student debt”.
Tomorrow – Tuesday 7th March - starts with breakfast and the sponsors exhibition from 8am and then the general sessions, focusing on current and future business models, from 8.45am CET.