um become less acute but it's still very difficult
difficult
we've also heard in the intro from from
Chris around the investment needs that
are there in relation to ESG and the
environmental regulations so that's a an
increasing Focus uh when looking at
hotel projects we talked about the cost
of Finance increasing but also really
the availability of executable Fields
just general volumes but also those
which can be transacted where we get
that match up between buyer and seller
price expectations
but I will point to a number of positive
considerations that are really being
experienced by the hotel industry and
particularly relative to broader real
estate so
the yield management the daily pricing
of rooms that hotels are able to
influence we've absolutely seen that
um be a positive for the industry is
being able to
deal with and offset the input cost
inflation that has been felt and the
demand actually for travel particularly
Leisure and also domestic corporate has
rebounded incredibly strongly so hotels
have been able to significantly increase
rates we're yet to see the full
reopening of all the long-haul routes in
particular China so that's still to come
in terms of potential increase of demand
in the future
um also given the disruption in the
market we see the ability for actually
the strength in in operations so good
managers being able to differentiate
themselves in hotel performance because
of the operational disruption that's
being experienced
there is this need for investment to
drive development uh the ESG investment
that's required but also to invest in
technology to keep Pace with what
customers are expecting so from a
private Equity perspective with the dry
powder that's been raised that we've
talked about already I think that
combines to create some
um uh some situations in the market
which are then positive for private
Equity investment and interestingly what
we've looked at is well how have hotels
performed relative to Broad real estate
on the equity market so this is a chart
looking at equity share price
performance of a basket of UK Hotel
listed companies and comparing that to
the UK ftse 350 real estate index going
back to July 2022 when this disruption
in the financing markets and inflation
really started to take hold and what we
can see from that presentation is that the
the
share prices of the UK Hotel basket has
outperformed broader real estate by 35
percentage points over that period so I
think this talks to the ability of
hotels to be able to offset and deal
with the inflationary challenges
relative to perhaps real estate which
has its um RPI links rents but take
so we look back in terms of actually
what how did the hotel Market react and
respond after the credit crunch
we've got a chart here which sort of
illustrates how broadly values were covered
covered
um post 2012 and some of the phases that
the market went through
first of all we had the initial crisis
phase which everybody will experienced
from from 2008 onwards but as we emerge
from that we saw an initial period of
deleveraging where lots of MPL sales
and more of the the investors who are
comfortable dealing with those complex situations
situations
conducting those transactions
particularly as I say relating to the
deleveraging from the banks
we then went through an asset management
phase where after the assets are
transferred into private Equity
ownership then actually a transition
into particular funds that were focused
more on that kind of operational
performance Improvement maybe dealing
with some of those issues which had
built up through the crisis
and then moving into what we've termed
more of the institutional phase so after
that initial turnaround has been
implementing we're getting more into a
business as usual
um situation and transitioning to more
institutional private equity and then
the final phases we felt were running
through uh towards the end of 2019 which
is more about financial structuring what
are the different opportunities in terms
of financial instruments to reduce cost
of capital to ensure that with the
valuations and how they've improved you
can still get the right return for the
investors in those deals so a few
different phases and I think what's
going to be interesting is well as we
have deals restart
what type of deals what style of deal
will they be foreign
so what we're seeing as to where we are
right now is the deal pipeline is
starting to grow there's significant dry
powder to be invested I think we've seen
a subsiding of that real volatility
certainly from an operational
perspective in a financing perspective
and all of that going towards making it
possible to look at deals again and
start to see that unlock a couple of
things I think will be important for
that first of all I think we have still
got this position of buyer and seller
value expectations and from the sell
side you know we've seen that impact on
profitability and we've seen that impact
on the cost of Finance then you know
views of how that impacts on on value
but also I think one of the key
catalysts that might see do activity
pick up is that we have got a wave of
debt maturities that are coming up and
with the increased cost of Finance where
profitability might be does that create
a funding Gap that needs to be met that
might trigger either refinancings or
possibly even asset transactions themselves
themselves
so I think in terms of what what's next
then I think it's important that
actually the deal types will be very
situation specific because of the
disruption that the market has seen but
we think thinking back to that recovery
from the the GFC three types of deals
like well come to the four over the next
12 months or so
first of all we do expect to see some de-leveraging
de-leveraging
um not significant npl sales as we saw
out of the credit crisis but I think
some some banks some lenders may be
looking to reduce overall exposure to
the sector through refinancing
um and and possibly asset sales
I think more of that asset management
style deal where there's a need for
Capital and perhaps enhanced more
experienced operational input to deal
with some of that
um operational disruption to recover
value and then also looking at some
Financial structuring style uh
transactions where you've got a good
business but the balance sheet isn't
quite right for the current levels of
performance maybe there's a need to plug
a funding gap or provide financing to
bridge to that recovery or also fund
growth in the business itself so I think
the Catalyst might be uncertain as to
what really kick-starts deal activity
but I think we've seen in previous
recoveries that actually was the first
deal happens then you typically see a
number of deals start to flow from that
so hopefully that's provided everybody
with a bit of a a backdrop in terms of
what we're seeing
um in the market and um look forward to
Graham coming back yeah I'm back on that
um a couple of questions uh from the
audience well firstly there's a question
about that someone under notes that domestic
domestic
Blue Collar travel is obviously
increasing is it really true though in
relation to White Collar travel
yeah certainly from the conversations we
have with with operators across the
market then um yeah they are seeing a
return of uh of White Collar travel some
of it is
um is a little different it may not
quite be the frequency that it was
before but I think companies are really
encouraging teams to get back together
to meet in person or perhaps seeing an
increase in uh the volume of smaller
meetings rather than perhaps the larger
set piece events
um but no I think there is that there is
a recovery uh in that and it certainly
seems quite broad-based across the
country certainly from the UK perspective
perspective
thank you and the next question is which
companies are included in the UK Hotel basket
basket
uh yeah so this looks at um pphe it
looks at IHG and it looks at Whitbread
great thank you and your outlook going
forward how do you feel positive I mean
there's obviously been a mix of the last
six months what do you view now
I think that there is um let's say one
of the reasons why we put the comparison
up to broader real estate is I think
there's been a um a bit of a tendency to
try and uh look at overall impacts on on
all real estate all operational real
estate and um I think what has struck us
certainly has been you know the ability
of of hotels for offset those
inflationary pressures through pricing
and there's also been a benefit in terms
of some Supply coming out of the
industry particularly with some of the
government contracts
um and all that has meant
um that for the industry itself there's
a there's a greater match of supply and
demand which is given some of the
pricing pressure uh pricing strength to
the the hotel operators
all right Graham thank you very much
that was excellent thank you very much
for your time this morning
um now can I invite Charles human from
htts to come and join us
Charles good morning and I'll pass over
to you thank you Chris good morning everyone
everyone
um I think is he's got my slide so if
so what I'm going to do is just take a
few minutes to run through some Trends
in private Equity investment in European
hotels both fast and present ready to
follow on from what Graham has said if
so this looks back over the last uh 20
odd years and shows uh the level of
private Equity investment in in European
hotels it wasn't really until the
mid-2000s that that private Equity
really established themselves as as
players prior to that there had been
some sort of opportunity funds and and
so-called vulture funds but it wasn't
really until 2004 2005 things really
took off and since then average volume
uh of investment by private Equity Funds
in European hotels has been 2.5 billion
oh yeah and that that compares to Total
average annual volume of just under 14
billion so it's about 18 of total volume
which possibly sounds low given given
the importance of your push on on
private Equity Funds uh there have been
some big highs in those years so 2007
big year but possibly not the wisest of
move given given what was to come
shortly afterwards and then big
investments in 2014 and 15 uh
principally in some large portfolios
that had been uh restructured
um following the the GFC and then more
moderate levels of investment
generally the pre the private Equity
Farms want scale and they particularly
like platforms so 70 since 2017 of
Acquisitions have been in in portfolios
the average deal size has been about 120
million and The Sweet Spot so 70 of
deals have been within the 45 million to
170 million range very little private
Equity investment in smaller deals
next slide
so if total total portfolio transaction
since 2004 25 have been from PE funds
and over the same time they've they've
invested in 12 of single assets
next slide
so this this shows
um average so it shows annual PE
investment into European hotels compared
to other investors so other investors
include the likes of the institutions
the REITs the family offices
um Hotel investment companies and
operators who are I think it's fair to
say typically have lower uh lower cost
of capital long-term holders uh compared
to the PE funds who are looking more
opportunistically more short term and
what's interesting here is that
Divergence that really started from 2015-16
2015-16
where other types of investors uh
increased proportionally their their
investment hotels and and lower activity
relatively speaking from the PE firms
and what this is really showing is PE
funds selling to other lower cost of
capital investors and the PE funds
finding it increasingly difficult to
compete against other investors who with
low at lower cost of capital so the
likes of the listed real estate
companies around town pandoks and so
forth cavivio access some of the big
longer term investors with with lower
next slide so over the last five years
70 of PE Acquisitions have have come
from uh 10
10p funds listed here pretty much all
all household names Blackstone obviously
uh at the biggest Brookfield also very
significant Investments but 70 coming
from these These funds
next slide
so the PE funds have been a very active
Sellers as well as buyers so it's it's
almost a mirror image here of of of
purchases and sales and it reflects the
short-term the intended short-term
nature of of private Equity investment
so 48 billion has cumulatively been
acquired over this period and 39 billion
in sales a slight lag effect but
um so very very very strong on on both
and what we've seen I think private
Equity Funds will typically say that
they look buying with a without with an
intended holding period of somewhere
between three and five years and more
hoping for three rather than five or
even shorter
and we've seen those holding periods
reduce over time so what this chart
shows is in in a particular year so if
you take
um to 2005 for instance of the
Acquisitions made in that year the
average whole period has been 11 years
reducing down to 2014 of three years so
uh this this shows primarily the impact
of the global financial crisis where PE
funds had bought prior to that and then
had to hold on to achieve that pricing
targets and couldn't sell at a period of
low values and as as values of recovers
in the market has has improved holding
periods have become shorter and shorter
but it's likely that that's now going to
rise with the impact of covid and and
the issues that we're facing now so we
will almost certainly CPE funds holding
on for longer than it originally intended
so it's interesting to see that hotels
are one of three uh sectors within real
estate where the allocation of PE funds
has increased since pre-pandemic so
Logistics is one hotel Hospitality the
other and Healthcare and office is very
marginally but you know not surprisingly
declines in retail
um you know against backdrops of
uncertainty in other sectors so it's
certainly on a relative basis PE funds
view hospitality and hotels as being um
um
areas of opportunity both short and and
long term foreign
UK has been a big Focus but what we've
seen more recently is is more focused on
Mediterranean markets Resort markets
Spain has been a big Focus
um increasingly Italy and there's been
so those are the markets that have seen
most activity over the last five years
UK was 2022 UK was almost more active in
the market with a couple of large
portfolio Acquisitions very low levels
of investment into
Germany and and particularly low into
and what we see in Instagram touched on
this what we've seen really is since the
middle of last year when interest rates
started to rise we've seen a pretty
strong slowdown in private private
Equity investment uh into hotels more
challenging times
um harder to harder to leverage which is
which is pretty crucial to up to a pu
fund story uh a more expensive cost of
debt lower level levels of debt
available so since July 2022 there's
been around 400 million euros of private
Equity investment into hotels and that
that compares to 10 billion from other
tax investors so it's a fraction of
investment total investment into the market
market
in year to date 2023 there's been 150
million invested compared to 3 billion
from from others so only five percent of
total in total uh total investment into
hotels you know what this does show is
that the market is by no means at a
standstill and that there is transact
transaction activity but it's not really
um where have they been buying more
recently it's a mix Belgium Spain uh and
and various you know deals in Germany
France and Sweden who's who's been
active you could see here so lone star
sonawag Catman uh Apollo have all been
active but relatively low levels of
it's so it's a tough time for for
private Equity Funds to to make
Acquisitions at the moment there's
there's low levels of debt available the
cost of that that is significantly
higher and that we haven't yet really
seen a movements in in pricing uh from
from sellers so the private Equity Funds
are really biting their time waiting for
either reduced reduced values or
improved debt markets
um and what what they have become is
more active as as uh as debt players
with with debt funds it's an it's a it's
a good Market To Be A lender in many
ways and and I think many are more
focused on that side of their business
rather than the equity side
we are seeing signs of of sellers
reducing pricing expectations to get
deals across the line
um the the the increasing debt
maturities are likely to present
opportunities and activity this this is
a significant challenge that that the
market will face over the coming 12
months and that we think will almost
certainly lead to more activity
probably lower values to be expected and
more more more activity for the private
Equity Funds
so I hope that's helpful that's um just
Joe that was great thank you very much
great presentation really interesting uh
a few questions for you from the
audience firstly what do you believe is
the reason for the little private Equity
I I think um
um
I mean there was going back 10 years or
more I think um
um
I think it's a number of factors one is
a lot of hotels they're released and
that's not really a model the private
Equity Funds follow they want to take
operating risk so there's less
opportunity from from that point of view
and I think they've just found better
value it's been a very low yielding
Market driven by very low interest rates
it's uh it it's a it's a low yielding
Market with with with kind of relatively
stable growth and better opportunities
in the more uh unexploited markets
particularly of southern Europe
I mean it's interesting to me it's
interesting how your presentation
obviously mirrored grams in lots of ways
what's your outlook going forward can I ask
is going to be quite a tough year all
round we we are seeing uh although
um inflationary pressures look like
they're going to ease off it's a pretty
tough time for hotels at the moment Top
Line is is holding up more or less it
seems but
margins are being squeezed uh that
maturities are are a big issue so we
think it's going to be
pretty tough time to be honest and we
it's it's hard to imagine the values are
going to do anything other than
decline uh to some extent over the next
next few months so we we expect to see
activity pick up towards the latter part
of the year but not really in Earnest until
until
uh 2024 probably
okay that's great Charles thank you very
much now just a favor from you there's a
number of questions on the on the Q a
could you just take a few minutes to
answer them
after the presentations that would be
very kind very pleasure yeah that'd be
very nice of them
um thank you for that great presentation
as I said now can I introduce Russell
cat chair chair of HCS London to join us
um if I can invite my colleagues on the
panel to join us on screen as well that
will be great we've got uh a wonderful a
wonderful and experienced panel uh of
people who know everything that uh is to
be known and will do their best to
answer both my questions and yours and
and I do stress uh the desire that we
should answer questions from our
distinguished audiences uh as uh you
have already started putting questions
in the Q a we'll try and answer as many
of them as we can
um your questions matter more than the
ones that I've prepared so please make
sure that we get the opportunity to deal
with the hot buttons that you have so a welcome
welcome
um to these six distinguished experts
um and I hold their opinions in in
extremely high regards so four come from
the world of private Equity young Willem
Tina Sabine press we have a lender
Louise and a lawyer James taboo so
um whatever we say uh James will pick up
the pieces afterwards and make sure we
don't get sued and uh hopefully we'll
have a lot of interest uh in what you
have all got to say now we all saw at
the very beginning of the session that
there were three polling questions
um so I'd like you all uh very briefly
just to tell me
um how you would have replied to each of
them so the first one was do you expect
investment in hotels in the next 12
months to change in volume okay so was
it grown by 10 or more grain by five
percent which seemed to be between the
two of them everybody expects things to
grow very little remaining the same
hardly anybody expects it to decline so
um just very quickly Louise what what's
what's your view on that question 10
Central North Bend Center more press
growth 10 or more
yeah and will have any any difference no
I think
uh
okay Sabine
ten percent or more same thing and James
you're not going to disagree with all of
these wonderful people are you only
slightly more pessimistic because I
think there are two things number one
it's about finding the opportunities as
we're seeing at the moment it's very
hard for people to secure opportunities
because they're just not coming to
Market I I guess you've got a question
that's relative to the last six months
which has been very quiet as well but
yeah he's gonna be challenged to find
deals okay and if people are going doing uh
uh require
require
um and given what Charles and Graham
have been saying maybe maybe not
um what are they going to acquire most
is it going to be City Center conference
Suburban limited service or Resorts you
saw what the answer was uh Tina what
what what's your what's your plug
I suppose I don't really like to pick a
segment because I think it's quite
dependent on Market opportunities
um but I suspect people will continue to
be investing in good markets so City
centers with strong demand
um as well as Leisure Resorts
um before us personally we look much
more around what is the operational play
what is the platform growth trajectory
and what is the management team like and Sabine
Sabine
yeah I can only like actually Tina
because it's a case by case isn't it
right so what we like is certainly we
like to go into markets where we see you
know kind of deep
um kind of liquidity in markets I mean
we have we have to opinion it's really
good to know at the price level you're
going in but if you want to get out you
should be able to so you don't want to
find yourself in a market that doesn't
provide you for those opportunities and
other than that certainly
um we do like for a number of reasons
more the kind of urban
um kind of hotels simply because there
is also always a live after in case of
something you decide to change usage
which is obviously some of the areas
that our development team are quite well
reversed in so uh but but we certainly
agree that there's lots of opportunities
as well in Leisure currently and I think
this has been proven as well by the
statistics we saw early on from uh hvs
as well lovely lovely James quick one
from you I think it's going to be your
European leisure European Legend
uh anything really where are we gonna
have some value at so you know uh City
Center Resort airport locations but uh
anything where we can you know do
something with cat packs you know
rebranding converting management
contracts into franchises to some cost
cutting so anything value out really
wonderful Chris
I agree with all these guys is stay
racist everybody's in violent agreement
with each other the one thing that I the
one thing that I will pick up on there
is I think it's interesting that zero
people said mice and Conference hotels
yeah and if everyone's flocking to the
key things the value is going to go up
right and the contrarian play is to go
into my son conference
um talking our own book slightly but
what we're seeing across our devere
portfolio is
the meetings and event space is holding
up uh a lot of the kind of meetings that
are happening are
uh you know people are Keen to get their
teams back together they're not doing
that in their offices they're doing that offside
offside
um yeah there's still a lot of
regulatory training and so yeah again
it's just interesting to see people's
perception of that market as the worst
one to invest in which creates an
opportunity for people to invest in it
okay so Louise bring up the rear on this one
one
well obviously I'm coming at it from the
different angles so for me it's just
Center towels because they're the most
stable throughout the various Cycles
um so yes I accept the opportunities for
private Equity will be elsewhere
wonderful okay and the final question we
asked and and then I'm going to move off
this so a very quick answer
um the main reason that's going to
discourage investors from acquiring or
investing in hotels in the next 12 months
months
um most people seem to feel that the
availability of debt Finance
um was going to be the main one and
concerns about Rising inflation need to
invest in capex uh lack of available
Supply and then the geopolitical stuff
and bid asked of it very very little
traction on that one so Louise it's all
down to you is it uh ability of debt
Finance is that that going to be uh the
biggest block um
um
potentially I mean debt finances there
and what we have seen is new engines
come into the financing Market
unfortunately the debt quantums that
people used to receiving are curtailed
and uh there's nothing that we can do
about that it is a symptom of the
increased interest costs and assets can
only accommodate so much debt
um so definitely the amount of debt that
you can put out on an asset is lower than
than
um what you are originally requested for
uh any of the panel want to disagree or
or enhance on that particular one Chris
are you
um I guess it's um I guess the biggest
thing is the lack of available assets
that are on the market
um and I guess if there as Louisa says
right there is debt there is just how
much and that just goes to pricing so
it's the bid ask spread and the
available to your kid on the market
that's probably the biggest Factor
anything different
oh I think that's I mean I'm still
worried about some of the recovery
particularly in Germany uh the ukai
seems I mean including the regional UK
but London obviously done really well
but if the Rich has done pretty well in
terms of recovery of the occupancy and
the average program is up quite a bit
but there are some Pockets where the
recovery is not being that strong so I'm
still quite worried about that and how
that's going to pan out so Germany
Austria Switzerland some pockets in the Netherlands
Netherlands
some some pockets in Central Europe
where your expenses are not recovered at
all close to 2019 numbers and the
average room rates are also hoovering
four years later still around the 2019
number so with significant amount of
inflation pressure in all these countries
countries
okay all right Sabine yeah any view that
challenges anything that's been said
already no I think um you know I I agree
again with what my panelists said I do
believe as well that I think the
operational side to hospitality is still
something that some parties are shying
away from uh so I think that and simply
because as you all know the you know
significantly increased uh kind of costs
that come along with Labor uh the
ability to find labor and to retain kind
of stuff is obviously is it's not a
trivial exercise
um I do want to say though that some
institutional investors and you know we
all know I guess you know some of the
the likes that already started to to to
form a firmer viewers starting now to
come into the hospitality space and I
think this is an interesting Trend to
see so these are people who are not
necessarily running after value at
opportunistic returns but they're happy
with core Plus and they are you know
Capital traditionally would have not
certainly not entered Hospitality so my
mind's a sign that there is a certain
level of appreciation that if you get
your head around the operations there's
indeed in asset class and mechanism in
driving Alpha returns thanks Tina
yeah sure um you know as you guys know
um we've been a private Equity Fund
that's only invested in travel measure
for the last three decades so we don't
really rotate into other asset classes
and I think um as opposed to shying away
from operational lovers we see that as
our way to have a Competitive Edge and
to create Alpha and to beat inflation
blood pressures right um I think the
hotel sector outperformed
um CPI during the last High inflation
period in the U.S in the 70s by one and
a half times more broadly and two times
for the resort sector
um that you know I think that that's a
really good Trend and for this asset
class as we enter into this High
inflationary period
um and that operational level I suppose
is where we still see opportunity
frankly in Europe because there's still
a lot of family-owned businesses there's
still a lot of under managed under
um capitalized and
um a lot of capex that you can spend to
drive that Alpha
um that's what we're hopeful to find
some opportunities to by some of the
other Market challenges lovely and last
[Music]
sorry Russell just uh I'm meeting myself
um I
I think it's going to be an interesting
uh challenge around
um where the best place to investors so
um I agree with Tina in terms of
um for them for the equity who funding
on the sector will be easier for them to
go forward
okay so let's uh let's move to a few
questions that I prepared and I'll I'll
start to look at what's in the Q a and
and see if there's something there that
we can bring out as well but just kick
us off if you don't mind
um I want one particular uh aspect of
the hotel sector from each of you what
excites you most
having a full set of 12-month trading
record that I can actually look back and
make some assumptions again I think
after three years various different
closures and disruptions just the return
to normalcy is exciting so Louise yearns
for a 12 months p l that doesn't have
any excuses uh Chris what's yours what
excites you know I I think what was it
getting us most excited at the moment is
kind of picking up Graham slides around
where we're right in the cycle and the
kind of probably the deleveraging that
needs to happen
um and the opportunity that creates for
well capitalized private Equity right uh
for a long time it's been very we've
been competing with a lot of lower cost
capital and I think now there's
opportunity to really kind of
differentiate and for us to kind of push
up the risk curve and um do some deals
that other guys are a bit
um can't find a bit taxing or get a bit
of indigestion over which for the last
kind of four or five years or so cover
this excluded was um it was just you
know the guy that paid the highest price
one okay Tina were you the paying the
um but uh I guess I suppose for us what
we're really excited is we've spent the
past few years investing in in growth
platforms and and now we have a strategy
either in City Center Europe
um in mid-scale Regional UK and boutique
UK and boutique
um pan Europe and we believe that those
platforms can really go after their
acquisition strategy and their growth
strategy particularly as debt financing
and pressures come in and hit individual
owners those are probably assets we
wouldn't acquire as a private Equity
Fund on a standalone basis but these
platforms these management teams are
very well positioned to take advantage
of those opportunities in the coming
months okay yeah young Willem we've
heard what's not exciting you what is
exciting uh anything minus really kind
of again going back to the value add so
we're going to reposition and Rebrand
anything else and and and more activity
coming out and more assets being put on
the market I think is really gonna
excite a lot of people to go back into
Hotel investment because there was a lot
of competition uh for quite cheap money
for quite a long period of time and I
think also not only the refinance is
going to go and create some
opportunities and people deleveraging
but also I think the redemptions with
the larger institutions
could also result in some more kind of
hotels being put on the market
Sabine are you in line with that what's
particularly exciting you yeah I simply
like the fact that we now seem to have
arrived at a point whereby the overall
outlook for the industry is actually
quite positive right uh there is a a a
sense of you know things kind of ramping
up again and we already alluded as well
to the point where we are in the cycle
perspective and yet at the same time um
if you look at it's true some of the
ownership of the assets you know some of
the leverage levels that some of these
Hotel owners currently are confronted
with and the resulting interest costs
are just not sustainable so I guess for
us that trades opportunity and then also
along the lines of what Diane William
said absolutely the value adds because
there was a long time whereby people
call themselves you know doing value-add
by basically just ramping up the lcv to
75 it was possible because you know
money didn't cost a lot now it's really
from our perspective Back to Basics and
as we have the as I mentioned
development for kids in-house and also
the day-to-day operations of assets you
don't have to go out and ask anybody
else to do it for us I think we have
well positioned to to hopefully Harvest
on some of those opportunities
thank you finally James
um you know what is particularly
exciting either you or your clients at
the moment I I think um I mean it's a
number of things but firstly the
potential of the Far East and tourist
return I mean London and uh Edinburgh
have performed extremely well uh without
that and they're all coming back I think
just touch on interest rates I I think
clearly the opportunities this year are
going to arise a result of that
refinancing War and the higher interest
rate so that is going to force people to
sell assets it's going to fall through
some some Innovative funding structures
as well which um for the private
actually on their debt side and we're
starting to see those sort of whole debt
solutions coming through to address the
funding shortfalls that are coming up
okay and just starting with you and uh
just looking at the other side of the
coin at what aspect is causing you
particular concern just one aspect each
go back
starting with me I I think the big
question is point in touch and only the
that bid ass Gap and how long it's going
to take for it to compress because
things will only start moving again once
sellers and buyers are in the same place
on price and then they're not there at
the moment and Louise as the lender Xbox
be interest cost movements and our
assumptions around them press
press
um Jan Williams point about how long
that rev part kind of takes to recover
where it has recovered how how long it
can hold up
versus how far is going to come back
and Tina
I think all the macro factors have been
mentioned so I'll say one of the things
that we talk a lot about as a forum
right now across our portfolio company
actually is cyber security and so that's
um we think that that is something that
all our portfolio companies all the
operators really need to get up to speed
on as fast as possible but frankly it's
very hard to catch up to these hackers
and what um what's being out there in
terms of attacking these systems so that
keeps us up at night more than perhaps
in the macro trends that you can manage
to recycle
good to know Sabine
yeah I uh believe that the areas where
we have some level of control on I think
we feel a bit more comfortable you know
such as you know operating models and
kind of making sure you drive
efficiencies and all the rest of it so
what what keeps me up at night is in the
things that we have very little control
on them which are you know interest rate
movements which are indeed kind of
geopolitical tensions
um Energy prices and are like um having
said that the let's say is apparently
now coming down quite nicely but these
are so it's it's it's the big pictures
where as I said you know as a you know
project replay you're very little I
guess influence on and yet it will have
significant implications on the
performance of your of your investment
the problem with coming last of a group
of six John William is that everybody
else has chosen the one that you
particularly wanted to mention but at
what aspect is causing you particular
concern at the moment I think that one
thing is on the investment side I'm
quite worried about how we're going to
find the middle ground to get a price
agreed so obviously you're you know your
returns are going to be measured by how
much Finance you can put on it and
that's gone down and the cost of the
financing all the PE guys are all
levered and ultimately that means that
your own level returns need to go up
or your price need to run down and I
think if you haven't met that middle
ground yet clearly because you know
there's obviously there are really
embarrassments that really tell us
compared to the transactions are done so
until that happens
then it's going to be quite tough to to
get any transactions done
all right so I'm going to move on to the
role of private equity and the hotel
investment Arena because we've got some
great expertise on the panel today
um and I'm gonna give you each the
opportunity to answer a particular
question that uh that I've identified
that I'd like you to concentrate on Zach
Chris I'm going to start with you how
can the hotel sector make the best use
of PE funding
got it uh okay so I think it's
well as in how do PE when P buying into
New Opportunities or kind of guys
looking to fundraise or either or both
either well but don't take a long time
over answering cool well so I guess
there's you know as um kind of uh
Charles mentioned earlier a lot of our
business businesses have been growing
the credit side of their businesses so
us Blackstone Apollo KSL do it as well
right actually providing uh senior loans
and mass financing to existing platform businesses
businesses
um that's definitely an area that um
Louise will see you know increased
competition in right versus your
traditional lending sources and then on
the on the acquisition size
um it's the same themes we've been
talking about it's really where we're
focused is the value add
um taking something but there's probably
either a broken balance sheet or broken
operations and then you know to using
our balance sheet and our expertise
um to reposition that asset you know
that's really the focus
okay and Louise how much interference
should a funder have on a hotel's
day-to-day operations
well ideally no no I mean we're
financing specialists in what they do
um they should know more than us about
the business that they're operating
obviously unfortunately there are times
where we have to sit together and buy
into a turnaround plan but we've
definitely seen that a lot over the last
three years
um but the relationship should be strong
enough that we're we are buying into a
valid business plan that a specialist
has put together
okay now Tina you've said that you
concentrate only on hotels so um you
don't have experience of uh other
sectors to draw on but maybe Sabine can
answer the question is too what your
experience of other sectors uh can bring
to the table to improve uh what PE can
bring to the hotel sector
sure I think so from our side having yes
the spike I guess in Hospitality but
also you know having invested developed
and operated other asset classes such as
retail or commercial and resi helps us
to look at an asset for what it is which
is a brick and mortar in a certain
location and sometimes you just need to
be able to say maybe we want to you know
increase the room count but maybe
sometimes the answer is guess what guys
we probably decreased the room count or
we take out the conference facility so
we add a different usage downstairs or
do we think about branded residencies uh
you know how what else can we do in a
parking lot so I think by by having
again the ability to look at an
opportunity not just Through The Eyes of
a hotel investor but generally as a real
estate investor and that allows us to
really identify what's the best use of
this as I said brick and mortar in that location
location
um can I give you specific examples no
because it really afterwards is a
case-by-case but I think that itself
already I hope at least allows for us to
to maximize returns and as I mentioned
as well that's why we do like Urban
locations quite a bit because it always
allows to have or to solve if we wanted
to for different usages as well
this is just one point of clarification
we um we don't do office or commercial
real estate but we're a private Equity
Fund that use broader travel and Leisure
right so we'll do Fitness we'll do
membership businesses golf and country
clubs and um and ski resorts and we I do
think that those
um operational best practices and
toolkits and Trends have a lot of
interesting corollaries with the hotel
sector we try to make sure that all the
management teams have that knowledge
base and best practice sharing wonderful
wonderful
um how can private Equity add the most
um I think they're really you know
buying undervalued Under capex stock and
optimizing some of the operating
structures particularly converting
management contacts into franchise would
seem to be a trend tranches in the way
the way to go so there's a lot of a lot
of stuff to be done there
I think that seemed to be you know
branding clearly is another option okay
I'll
up to you guys but James you can have
first dibs
um what aspects of Hotel funding do you
think that private Equity is mostly
going to focus on in the coming uh 12
months or so you know are we going to be
focused on the traditional existing
hotels uh is it going to be providing
junior or mazdaq uh and how uh you know
does that compare with you know the
equity side are you only looking at
branded will you look at the independent
leases versus freeholds and so forth and
what are you not going to focus on you
know are you going to focus on uh
everything other than you development
for example in fact James from your
experiences to what your clients are
looking at where do you think that
answer is yeah I I guess if you look at
it in the rising market which we've had
up until summer last year it was quite
easy to make investments yes you could
devalue ads but you could make your
returns by virtue in some ways the price
is rising I think the suspicion must be
over the next two to three years that's
going to be very hard to achieve so I
think for investors be the private actor
or anything else it's about how do I
take an asset and add value I think one
of the things we haven't talked about
and quite interesting and you know you
invest in one of them
um is things like apart hotels service
department hotel and co-living those
kind of sectors that are a bit new and a
bit different I think where people may
say well that's where the opportunities
here to take something totally different
roll it out and do something different
with it rather than traditionally investing in City Center Hiltons and
investing in City Center Hiltons and Marriotts and where you've got a much
Marriotts and where you've got a much more defined asset I think you people
more defined asset I think you people are going to have to be inventive as to
are going to have to be inventive as to how they get the returns of their irr
how they get the returns of their irr target Returns on Capital One Tina
target Returns on Capital One Tina um it's a question I'd say in terms of
um it's a question I'd say in terms of the cap stack first you're gonna we're
the cap stack first you're gonna we're already seeing in the US at least our
already seeing in the US at least our debt funds being quite active
debt funds being quite active um I think when you're kind of in this
um I think when you're kind of in this part of the cycle the dislocation first
part of the cycle the dislocation first comes for the the credit funds and
comes for the the credit funds and alternative lenders um and so they're
alternative lenders um and so they're quite active we're excited about that
quite active we're excited about that opportunity certainly from the equity
opportunity certainly from the equity perspective we're um very much on the
perspective we're um very much on the lookout for when the values do come in
lookout for when the values do come in line with our expectations of where the
line with our expectations of where the macro is
macro is John William
John William uh I think clearly focus on the existing
uh I think clearly focus on the existing hotels rather than new builds I think
hotels rather than new builds I think they will not be very active uh
they will not be very active uh preferably portfolios versus single
preferably portfolios versus single asset but you know they're also starting
asset but you know they're also starting to do the PE funds are also started to
to do the PE funds are also started to do aggregation games they've done that
do aggregation games they've done that in in many other sectors so I think
in in many other sectors so I think we're going to see a few of those where
we're going to see a few of those where they start buying smaller assets and
they start buying smaller assets and start to put portfolios together uh
start to put portfolios together uh obviously Mass financing because of the
obviously Mass financing because of the lack of that or or the top of the debt a
lack of that or or the top of the debt a free olds versus uh versus lease
free olds versus uh versus lease portfolios in my mind I can't see them
portfolios in my mind I can't see them being very active buying you know at
being very active buying you know at least up close basically
least up close basically uh new development I think will be
uh new development I think will be limited
limited okay Sabine
okay Sabine yeah I mean again pretty much Echo here
yeah I mean again pretty much Echo here what what we heard so far I think the uh
what what we heard so far I think the uh the opportunity certainly there's a lot
the opportunity certainly there's a lot of talk about that site and I think that
of talk about that site and I think that rightly so again giving that obviously
rightly so again giving that obviously senior lenders are being I guess
senior lenders are being I guess restricted to some level from icr
restricted to some level from icr covenants and the like I think that that
covenants and the like I think that that probably creates quite significant
probably creates quite significant opportunity across the board by the way
opportunity across the board by the way not just for Hospitality I do think that
not just for Hospitality I do think that there is a a value to be found for you
there is a a value to be found for you know converting independent hotels into
know converting independent hotels into International branded ones as we already
International branded ones as we already have before and then uh you know I think
have before and then uh you know I think depending on the market I mean there is
depending on the market I mean there is there can be obviously value in in uh
there can be obviously value in in uh you know taking these whole assets and
you know taking these whole assets and trying to convert it back into Freehold
trying to convert it back into Freehold uh I think for us you know we are
uh I think for us you know we are agnostic but obviously the clear
agnostic but obviously the clear preference for investors normally would
preference for investors normally would be the Freehold title right eventually
be the Freehold title right eventually so
so um I think from that perspective yeah
um I think from that perspective yeah that's kind of uh I guess the focus of
that's kind of uh I guess the focus of classical private equity
here which is kind of interesting is the kind of the debt of the office and I
kind of the debt of the office and I wonder if PE on the long term are going
wonder if PE on the long term are going to start to be interested to start to
to start to be interested to start to convert offices into let's say Budget
convert offices into let's say Budget Hotels I mean that's not really we did
Hotels I mean that's not really we did we did that so far but uh it wouldn't
we did that so far but uh it wouldn't surprise me if there's going to be some
surprise me if there's going to be some PE guys out there that do conversions
yeah well just to say we did convert one the only issue with that is obviously
the only issue with that is obviously the it works actually reasonably well
the it works actually reasonably well with let's see some older smaller size B
with let's see some older smaller size B stock offices right that obviously are
stock offices right that obviously are facing considerable kind of valuation
facing considerable kind of valuation issues currently
issues currently um uh you know also from an EHD
um uh you know also from an EHD perspective the only issue with that is
perspective the only issue with that is sometimes you know the floor plate is
sometimes you know the floor plate is too big too large the issue is at a
too big too large the issue is at a practical one because your room will
practical one because your room will only have a certain length and so as a
only have a certain length and so as a result of that if the Flop head is too
result of that if the Flop head is too large and obviously you need to have as
large and obviously you need to have as well you know windows or natural light
well you know windows or natural light you can't just you know build your room
you can't just you know build your room like you know two meters times you know
like you know two meters times you know ten it it just has to have a certain
ten it it just has to have a certain minimum kind of width as well and uh you
minimum kind of width as well and uh you know short of just putting a hole into
know short of just putting a hole into the heart of that building in the middle
the heart of that building in the middle which is obviously highly inefficient
which is obviously highly inefficient for the bigger offices I'm not sure how
for the bigger offices I'm not sure how well these conversions you know are kind
well these conversions you know are kind of rumors here realize but yeah you're
of rumors here realize but yeah you're right so we did it on a these smaller
right so we did it on a these smaller size B office and then it actually works
size B office and then it actually works quite well
quite well and of course if if you've got larger
and of course if if you've got larger floor plates that gives opportunities to
floor plates that gives opportunities to the Hostile sector who can make just
the Hostile sector who can make just bigger rooms and use those dead spaces
bigger rooms and use those dead spaces in the middle of buildings that's right
in the middle of buildings that's right yeah but in conversion NASA needs to
yeah but in conversion NASA needs to work though right to sabine's point um
work though right to sabine's point um because some of these offices aren't
because some of these offices aren't located where that traveler will go or
located where that traveler will go or um the valuation of price per square
um the valuation of price per square foot for those commercial offices for
foot for those commercial offices for some of them might not work from a
some of them might not work from a conversion story but I agree it's it's
conversion story but I agree it's it's there it's just it's not this everything
there it's just it's not this everything can be converted into hotels and it
can be converted into hotels and it solves the the problem of office space
solves the the problem of office space yeah I mean actually I have a theory
yeah I mean actually I have a theory about app reach out
about app reach out um you know we know the way the retail
um you know we know the way the retail sectors going if you've got these big
sectors going if you've got these big department stores leave the middle of
department stores leave the middle of the floor plate to retail and take the
the floor plate to retail and take the outside of the buildings where the
outside of the buildings where the windows are uh and and put hotel rooms
windows are uh and and put hotel rooms around that so anyway that's for another
around that so anyway that's for another time Chris Penny and we're just picking
time Chris Penny and we're just picking up what the guys who said it is
up what the guys who said it is definitely going to be the trend right I
definitely going to be the trend right I think new build development is super
think new build development is super expensive with what's happened with
expensive with what's happened with labor inflation so repurposing existing
labor inflation so repurposing existing buildings is much more cost effective
buildings is much more cost effective um and the same thing of moving from
um and the same thing of moving from Independence to to Brands um it's really
Independence to to Brands um it's really interesting talking to Marriott Hilton
interesting talking to Marriott Hilton IHG they're all pushing their soft
IHG they're all pushing their soft refurbishment Brands
refurbishment Brands um to say that you know really trying to
um to say that you know really trying to get that that refurbishment cost down
get that that refurbishment cost down and plug it into their distribution
and plug it into their distribution system
system um I think a lot of a lot of uh
um I think a lot of a lot of uh independent owners kind of got through
independent owners kind of got through covered with various government supports
covered with various government supports taking out extra sea bills extra loans
taking out extra sea bills extra loans Etc and now that those guys are coming
Etc and now that those guys are coming up for refinancing and there's the
up for refinancing and there's the opportunity to plug it into you know
opportunity to plug it into you know something like a Mario as an autograph
something like a Mario as an autograph or ihd as a vocal or whatever right and
or ihd as a vocal or whatever right and you know that that's going to be um uh
you know that that's going to be um uh you know I think a few more assets going
you know I think a few more assets going that direction
that direction thank you so Louise it's interesting
thank you so Louise it's interesting that none of our private Equity players
that none of our private Equity players um seems to want to get into providing
um seems to want to get into providing mezzanine fans Finance or Junior debt or
mezzanine fans Finance or Junior debt or whatever sort of leaving the road free
whatever sort of leaving the road free to the traditional lenders but
to the traditional lenders but um what's what's your view on
um what's what's your view on um what
um what most people are going to want to be
most people are going to want to be seeing uh investment in
seeing uh investment in um do you for example get involved in
um do you for example get involved in development Finance for those that have
development Finance for those that have the courage and the the world who want
the courage and the the world who want to build from scratch
to build from scratch it was still doing development Finance I
it was still doing development Finance I think the um pipeline of development
think the um pipeline of development projects is much smaller
projects is much smaller um but there are you know still plenty
um but there are you know still plenty of um investors there it's costly to not
of um investors there it's costly to not do anything with their sites um and
do anything with their sites um and development financing is achievable it's
development financing is achievable it's um it is higher priced at the moment
um it is higher priced at the moment because it does come with a higher risk
because it does come with a higher risk we have to be clear that it is at the
we have to be clear that it is at the current times the inflationary pressures
current times the inflationary pressures is higher risk but I think it's taken a
is higher risk but I think it's taken a step back and
step back and um understanding the projects in detail
um understanding the projects in detail specifically their procurement plans
specifically their procurement plans which parts should we be able to lock
which parts should we be able to lock down costs on which parts should we be
down costs on which parts should we be adding more inflationary assumptions to
adding more inflationary assumptions to um so I don't think the development will
um so I don't think the development will stop
stop um potentially it's more High net worth
um potentially it's more High net worth investors where they can hold their
investors where they can hold their projects for a longer term than it is
projects for a longer term than it is private equity in the current time and I
private equity in the current time and I think that that is key that in order to
think that that is key that in order to really maximize your investment the
really maximize your investment the holding Horizons are longer
holding Horizons are longer okay I can just add um one thing I think
okay I can just add um one thing I think Chris and I both work for firms um that
Chris and I both work for firms um that have credit funds um and those those
have credit funds um and those those that team I think are really excited
that team I think are really excited about the the junior piece are talking
about the the junior piece are talking about because frankly senior lenders
about because frankly senior lenders their LTV is lower than what the actual
their LTV is lower than what the actual ask is out there for total proceeds so I
ask is out there for total proceeds so I think about if anything that's where
think about if anything that's where we're seeing the most activity and
we're seeing the most activity and opportunity in the US is our credit team
opportunity in the US is our credit team interesting yeah exactly it's just that
interesting yeah exactly it's just that just the return hurdle for the
just the return hurdle for the opportunity fund right yeah
opportunity fund right yeah okay so um thanks guys um I'm gonna look
okay so um thanks guys um I'm gonna look to our distinguished audience to ask the
to our distinguished audience to ask the next question
next question um first of all follow up on the rising
um first of all follow up on the rising cost of capital both equity and debt
cost of capital both equity and debt would you consider Club deals and having
would you consider Club deals and having multiple investors on board to lower
multiple investors on board to lower that cost what are the pros and cons of
that cost what are the pros and cons of something like that further down the
something like that further down the line so
line so um Club deals any interest young Willem
um Club deals any interest young Willem I've not really seen that I think but uh
I've not really seen that I think but uh in the past I think you know all the Pas
in the past I think you know all the Pas they don't really need any other capital
they don't really need any other capital I guess mixing it up with lower Capital
I guess mixing it up with lower Capital requirements and funds I think is going
requirements and funds I think is going to be difficult
to be difficult and Tina we've done a club deals in
and Tina we've done a club deals in larger deals it's not it doesn't solve
larger deals it's not it doesn't solve for cost of capital issue because most
for cost of capital issue because most of the time we're partnering with
of the time we're partnering with another private Equity Fund like KKR
another private Equity Fund like KKR that has the same cost Capital as us but
that has the same cost Capital as us but um we did it on Apple Leisure group as
um we did it on Apple Leisure group as well as in our um Ross Aviation which is
well as in our um Ross Aviation which is our private
our private um Aviation business in the US and that
um Aviation business in the US and that was more of a question of bringing
was more of a question of bringing complementary skill sets and also
complementary skill sets and also um Capital to the table for a large deal
um Capital to the table for a large deal but it doesn't really as I say solve the
but it doesn't really as I say solve the cost of capital issue
cost of capital issue and and for you Sabine are you involved
and and for you Sabine are you involved in any or interested in him I mean
in any or interested in him I mean certainly in theory you can but then you
certainly in theory you can but then you know practically you look at issues like
know practically you look at issues like again the men that we normally have is
again the men that we normally have is not we're not passive right we're active
not we're not passive right we're active so you're becoming part of a club and
so you're becoming part of a club and then you know who's control you know
then you know who's control you know it's not impossible and certainly you
it's not impossible and certainly you know we do but generally speaking it's
know we do but generally speaking it's not a club it's more you know core
not a club it's more you know core Investments alongside of for example
Investments alongside of for example what do we do right so that's more what
what do we do right so that's more what we use to to see actually
we use to to see actually I think Russell I can see your club with
I think Russell I can see your club with the seller sometimes the seller stayed
the seller sometimes the seller stayed in
could help right in this day and age the debt financing issues we've seen that in
debt financing issues we've seen that in terms of being creative on capital
terms of being creative on capital structure exactly I think you know
structure exactly I think you know there's Graham pointed out in his
there's Graham pointed out in his presentation like there's no shortage of
presentation like there's no shortage of dry powder it's it's only if it's a
dry powder it's it's only if it's a really large deal so we teamed up with
really large deal so we teamed up with Blackstone in 2020 when we took down Esa
Blackstone in 2020 when we took down Esa in the US but that was a six billion
in the US but that was a six billion dollar transaction
dollar transaction um so you know can you just stress to be
um so you know can you just stress to be a billion rather than
yeah exactly right and then we've done another you know one plus billion of
another you know one plus billion of bolt-ons on top of that so you don't
bolt-ons on top of that so you don't make a deal in the US that sort of thing
make a deal in the US that sort of thing we team up but um
we team up but um yeah it I think most of the guys on this
yeah it I think most of the guys on this call will have their Capital to do the
call will have their Capital to do the deal as if they if they can get the
deal as if they if they can get the returns to work right
returns to work right okay James any examples of Club deals
okay James any examples of Club deals that you've been involved with
that you've been involved with yeah so I mean I've got a number of
yeah so I mean I've got a number of deals I mean Tina said doing it where
deals I mean Tina said doing it where the equity is clubbing together is
the equity is clubbing together is difficult but bringing in skill sets we
difficult but bringing in skill sets we see that quite a lot whereas a capital
see that quite a lot whereas a capital investor who hasn't necessarily got the
investor who hasn't necessarily got the the skills to management Hotel will team
the skills to management Hotel will team up to do that together and they may put
up to do that together and they may put some capital in as well vendors staying
some capital in as well vendors staying in the deal and that sort of thing tends
in the deal and that sort of thing tends to be far more common than sort of JV
to be far more common than sort of JV type structures between
type structures between um private Equity unless it's a very big
um private Equity unless it's a very big deal
deal I'm assuming Louise you have nothing to
I'm assuming Louise you have nothing to add on this but if you do now Now's the
add on this but if you do now Now's the Time
Time another member of our distinguished
another member of our distinguished audience says to what extent does ESG
audience says to what extent does ESG drive your investment decisions and he
drive your investment decisions and he he points out that uh typical investment
he points out that uh typical investment memorandas are remarkably silent on such
memorandas are remarkably silent on such matters so
matters so um you know what do you see is the role
um you know what do you see is the role and importance of ESG on the hotel
and importance of ESG on the hotel sector Chris
um so it's definitely an important factor Ryan is becoming increasingly so
factor Ryan is becoming increasingly so um over the last probably four years
um over the last probably four years it's gone from something that we talked
it's gone from something that we talked about at the back end of our investment
about at the back end of our investment committee papers to something that's
committee papers to something that's right you know up front in our analysis
right you know up front in our analysis um the risk of obsolescence and assets
um the risk of obsolescence and assets is you know something that a year two
is you know something that a year two years ago no one was concerned about
years ago no one was concerned about people just used to get an EPC as long
people just used to get an EPC as long as it wasn't an F or something okay
as it wasn't an F or something okay we're fine now we're much more focused
we're fine now we're much more focused on you know is this asset
on you know is this asset um the whole UK European and global
um the whole UK European and global economy is moving towards net zero at
economy is moving towards net zero at various speeds and you're going to have
various speeds and you're going to have to align into that
to align into that I think where actually we see the
I think where actually we see the biggest focus on this is um not just on
biggest focus on this is um not just on the investment side but on the
the investment side but on the operations and actually using uh that to
operations and actually using uh that to drive your returns by you know improving
drive your returns by you know improving Energy Efficiency decrease increasing
Energy Efficiency decrease increasing the cost
the cost but also you know I'll talk my own
but also you know I'll talk my own company here but you know working with a
company here but you know working with a company like one one eight hours and the
company like one one eight hours and the way that they position those assets on
way that they position those assets on the sustainability Point really Taps
the sustainability Point really Taps into
into customer demand and you can drive uh you
customer demand and you can drive uh you know real rate premium because the
know real rate premium because the customer you know wants to travel
customer you know wants to travel sustainably wants to go to a hotel that
sustainably wants to go to a hotel that aligns with their beliefs and values and
aligns with their beliefs and values and will pay up for that
will pay up for that so you know it you know factors into our
so you know it you know factors into our our whole underwrite but also you know
our whole underwrite but also you know operationally how we're um how we're
operationally how we're um how we're running our businesses managing our our
running our businesses managing our our waste and our energy consumption and
waste and our energy consumption and it's flowing through into profitability
it's flowing through into profitability so being I know you're pretty passionate
so being I know you're pretty passionate about ESG
about ESG um so what what do you have to work to
um so what what do you have to work to say on the subject yeah I mean going
say on the subject yeah I mean going forward yeah and you're right so we've
forward yeah and you're right so we've been obviously on this on this uh kind
been obviously on this on this uh kind of broad already for quite a while so as
of broad already for quite a while so as people know we had of course ESG manager
people know we had of course ESG manager eight years back and simply because you
eight years back and simply because you know again if you are the developer and
know again if you are the developer and if you are the data operator you want to
if you are the data operator you want to make sure you know that you're doing
make sure you know that you're doing things right in particular ground-up
things right in particular ground-up development initially and then also now
development initially and then also now on the on the reconversions of assets if
on the on the reconversions of assets if you're going along I think I mean we
you're going along I think I mean we heard it before it helps on so many
heard it before it helps on so many areas right I mean it helps on the
areas right I mean it helps on the energy side energy bills obviously going
energy side energy bills obviously going up so that's great if you have a way of
up so that's great if you have a way of how to mitigate that at least to some
how to mitigate that at least to some level it helps you from your um you know
level it helps you from your um you know financing as well I mean at the moment
financing as well I mean at the moment everybody talks about Green Loans and
everybody talks about Green Loans and and you know the fact that the
and you know the fact that the conditions may not be from a commercial
conditions may not be from a commercial perspective so much superior to the
perspective so much superior to the standard commercial loans but fast
standard commercial loans but fast forward in five years time we do believe
forward in five years time we do believe that you know as risk management is
that you know as risk management is starting to rule our lives right it's
starting to rule our lives right it's going to be your ASG compliant you get a
going to be your ASG compliant you get a loan you're not the issue compliance so
loan you're not the issue compliance so you will no longer be compliant with
you will no longer be compliant with senior Banking and I think that means
senior Banking and I think that means that the cost of the cost of Finance is
that the cost of the cost of Finance is going to go up uh you know we see it in
going to go up uh you know we see it in you know when it comes to Staffing and
you know when it comes to Staffing and and retaining your stuff and that the
and retaining your stuff and that the Next Generation they do take those
Next Generation they do take those things serious so
things serious so um important element there and then you
um important element there and then you know in some areas you even get you know
know in some areas you even get you know benefits from the government side in the
benefits from the government side in the forms of taxes I mean
forms of taxes I mean um you know one of our bigger platforms
um you know one of our bigger platforms obviously in australasia and there the
obviously in australasia and there the government gives you a you know a final
government gives you a you know a final withholding tax kind of break if if
withholding tax kind of break if if you're if you add it as it happens to be
you're if you add it as it happens to be uh you know achieving a high HD standard
uh you know achieving a high HD standard so so it makes sense already today a
so so it makes sense already today a commercially plus you're doing the right
commercially plus you're doing the right thing by the environment and you know
thing by the environment and you know factors that in Europe some of the
factors that in Europe some of the biggest institutions will no longer be
biggest institutions will no longer be able to to to to to invest because uh
able to to to to to invest because uh they're obviously from a I guess new
they're obviously from a I guess new taxonomy perspective
taxonomy perspective um you know issue a portfolio your
um you know issue a portfolio your portfolio doesn't hold a certain
portfolio doesn't hold a certain percentage of ESG confined assets not
percentage of ESG confined assets not just in hotels but again in general
just in hotels but again in general going forward uh you know you'll be fine
going forward uh you know you'll be fine so it's a pretty obvious from up from
so it's a pretty obvious from up from our perspective it's pretty obvious
our perspective it's pretty obvious seeing what people should do now
seeing what people should do now obviously the big question is how are we
obviously the big question is how are we getting there and as I think 80 of the
getting there and as I think 80 of the buildings that we'll be standing in 2050
buildings that we'll be standing in 2050 already are standing assets you know
already are standing assets you know it's really up to us all to figure out
it's really up to us all to figure out ways of how to make those standing
ways of how to make those standing assets you know and convert them into
assets you know and convert them into ESG compliant ones
ESG compliant ones um that's that that's that's certainly a
um that's that that's that's certainly a task upon us all and it's not easy but
task upon us all and it's not easy but but we just have to work on it
but we just have to work on it so it's not easy senior or have you
so it's not easy senior or have you found a way to make it easy
found a way to make it easy no it's um it's not easy and certainly
no it's um it's not easy and certainly the measurement
the measurement um and trying to keep up with exactly
um and trying to keep up with exactly what the regulatory
what the regulatory um government is going to want out of a
um government is going to want out of a report from a reporting perspective
report from a reporting perspective um you know there's there's a lot of
um you know there's there's a lot of catching up to do even if you are doing
catching up to do even if you are doing all the right things to get up to speed
all the right things to get up to speed on the reporting element I'd say that I
on the reporting element I'd say that I would only add I'm agree with everyone
would only add I'm agree with everyone um in what they say the only thing I'd
um in what they say the only thing I'd add is it's also becoming incredibly
add is it's also becoming incredibly important to the employees of our hotel
important to the employees of our hotel companies you know there's certain
companies you know there's certain um companies that we have today that I
um companies that we have today that I think actually are a better positioned
think actually are a better positioned from a labor market perspective because
from a labor market perspective because they align very well to the values of
they align very well to the values of their employees
their employees um and so it's it's not just the
um and so it's it's not just the consumers are demanding it but it's also
consumers are demanding it but it's also our employees
our employees so consumer demanding it employees are
so consumer demanding it employees are demanding it investors are demanding it
demanding it investors are demanding it young Willem have you how do you make it
young Willem have you how do you make it all stack out well I I think you know is
all stack out well I I think you know is you becoming obviously a major item in
you becoming obviously a major item in all the investors mindset though I think
all the investors mindset though I think there's still a lot of confusion and
there's still a lot of confusion and some clarity lack of clarity about you
some clarity lack of clarity about you know what the different metrics are the
know what the different metrics are the requirements but I think that's
requirements but I think that's obviously over the next couple of years
obviously over the next couple of years that would be very much clarified you
that would be very much clarified you know what is really focus on it and ESU
know what is really focus on it and ESU reporting is becoming uh now quite
reporting is becoming uh now quite normal in all institutional reporting
normal in all institutional reporting both to the banks and to the investors
both to the banks and to the investors um I think there's still a risk as well
um I think there's still a risk as well on this zombie properties you know we're
on this zombie properties you know we're gonna fit you know fall behind and it
gonna fit you know fall behind and it will be so expensive to improve and hit
will be so expensive to improve and hit this requirements over the next couple
this requirements over the next couple of years
of years interesting
interesting um now Louise you're looking at it from
um now Louise you're looking at it from a different perspective but is this now
a different perspective but is this now more than just a box ticking exercise as
more than just a box ticking exercise as far as you're concerned yes I think so I
far as you're concerned yes I think so I mean
mean um part of our appetite is financing
um part of our appetite is financing World Cup X assets or where the project
World Cup X assets or where the project is to provide capex on those assets so I
is to provide capex on those assets so I think with that in mind it's it's quite
think with that in mind it's it's quite hard for investors to be doing capex
hard for investors to be doing capex without thinking of energy efficiencies
without thinking of energy efficiencies and everything else that's going around
and everything else that's going around it so I think the nature of the business
it so I think the nature of the business we do
we do um means that ESG is is important to
um means that ESG is is important to those transactions
those transactions um measuring on an ongoing basis is is
um measuring on an ongoing basis is is an issue I think it will be
an issue I think it will be um interesting when it's all bought into
um interesting when it's all bought into the uniform system of accounts
the uniform system of accounts um to see what type of assets is
um to see what type of assets is performing at what level and what looks
performing at what level and what looks good over the variety of assets that we
good over the variety of assets that we Finance you know it's very easy for a
Finance you know it's very easy for a purpose-built limited service disaster
purpose-built limited service disaster to be performing at one level but try
to be performing at one level but try pushing that on a luxury asset and
pushing that on a luxury asset and something that's been repositioned they
something that's been repositioned they look very different so I think the the
look very different so I think the the monitoring is going to be
monitoring is going to be um needs to be thought through
um needs to be thought through interestingly I was having a
interestingly I was having a conversation yesterday evening with a
conversation yesterday evening with a member of the committee that is
member of the committee that is responsible for producing the next
responsible for producing the next edition of the uniform system and I
edition of the uniform system and I asked her to what extent are you
asked her to what extent are you considering ESG as part of this
considering ESG as part of this um and even they are now finally waking
um and even they are now finally waking up to the fact that this does need to be
up to the fact that this does need to be properly addressed and I'm hopeful that
properly addressed and I'm hopeful that by the time I think it's the 15th
by the time I think it's the 15th Edition it's the next one coming out by
Edition it's the next one coming out by the time we get that ESG will actually
the time we get that ESG will actually have made more of an impact uh in that
have made more of an impact uh in that James I'm going to ask you to wrap up on
James I'm going to ask you to wrap up on this particular uh topic and you know do
this particular uh topic and you know do you have a good example of a hotel
you have a good example of a hotel company that's already dealing with ESG
company that's already dealing with ESG particularly well
particularly well yes well I well we have have one on the
yes well I well we have have one on the call but there are a number of people
call but there are a number of people out there who um are uh you know sort of
out there who um are uh you know sort of leading the charge on that so lamington
leading the charge on that so lamington and Zeal hotels and again you know talk
and Zeal hotels and again you know talk to them they are very much into that as
to them they are very much into that as a key part of their business strategy
a key part of their business strategy going forward I get I guess there's a
going forward I get I guess there's a couple of things I other you look at
couple of things I other you look at other real estate sectors there has
other real estate sectors there has already been government intervention
already been government intervention saying you have to hit minimum energy
saying you have to hit minimum energy criteria standards I suspect we will see
criteria standards I suspect we will see more and more legislation and it's
more and more legislation and it's almost certainly an impact on hotels
almost certainly an impact on hotels they've done offices they've done
they've done offices they've done residential letting you know it is
residential letting you know it is coming our way the government will be
coming our way the government will be saying you have to hit these standards
saying you have to hit these standards what there hasn't been and there's been
what there hasn't been and there's been a discussion we've had lots of times is
a discussion we've had lots of times is um I've done a number of Green Loans the
um I've done a number of Green Loans the reality is the pool of capital funding
reality is the pool of capital funding those is no different from
those is no different from um the capital funding and longering
um the capital funding and longering Loans what we haven't seen yet in any
Loans what we haven't seen yet in any great volume is capital allocations that
great volume is capital allocations that aren't specifically targeted at Green
aren't specifically targeted at Green assets and that is that I think is what
assets and that is that I think is what will come it's not there yet nothing
will come it's not there yet nothing significant numbers yet anyway but when
significant numbers yet anyway but when there is a real distinction between a
there is a real distinction between a funds specifically talking in that
funds specifically talking in that sector with pricing that is beneficial
sector with pricing that is beneficial to do so that's when we'll be starting
to do so that's when we'll be starting to get there
to get there um a very quick follow-up question to
um a very quick follow-up question to build on what we've been talking about
build on what we've been talking about comes from our audience how much do the
comes from our audience how much do the panel believe the significant cost of
panel believe the significant cost of hotels heading towards net zero will
hotels heading towards net zero will affect their valuation aspirations how
affect their valuation aspirations how much did the panel believe the
much did the panel believe the significant cost of a tells heading
significant cost of a tells heading towards net zero is going to affect your
towards net zero is going to affect your valuation experiences aspirations uh Jan
valuation experiences aspirations uh Jan Willem a very quick answer from each of
Willem a very quick answer from each of you
you well evaluations will be impacted by the
well evaluations will be impacted by the additional cash you need to spend so you
additional cash you need to spend so you know so valuation values are going to go
know so valuation values are going to go down anybody got a different View
down anybody got a different View okay
okay all I've had is all I've had is that um
all I've had is all I've had is that um I don't think hotels are any worse than
I don't think hotels are any worse than any average business anyway globally
any average business anyway globally right so okay the value of everything
right so okay the value of everything will have to go down because we've got
will have to go down because we've got to decarbonize the world right you've
to decarbonize the world right you've got to find the money from somewhere
got to find the money from somewhere okay guys I'm very sorry but we've got
okay guys I'm very sorry but we've got to our last question we we you know our
to our last question we we you know our timers run out so quickly a very quick
timers run out so quickly a very quick answer from each of you and please don't
answer from each of you and please don't repeat anything that one of the other
repeat anything that one of the other panel has mentioned but I would like to
panel has mentioned but I would like to know in your view the key Trend that
know in your view the key Trend that you're factoring into your view of the
you're factoring into your view of the hotel sector over the next 12 months
hotel sector over the next 12 months what key Trend are you factoring in
what key Trend are you factoring in Louise
Louise uh probably unfortunately interest costs
uh probably unfortunately interest costs staying higher for longer than what we
staying higher for longer than what we anticipate
anticipate Express
Express uh the return of Asian traveling to
uh the return of Asian traveling to Europe
Europe Sabine
Sabine the um how things are paneling out
the um how things are paneling out between people looking for leisure
between people looking for leisure destinations or leisure travel and
destinations or leisure travel and obviously seeing the uh I guess business
obviously seeing the uh I guess business travel coming back um
for me I think it's owners having to find cash to inject into deals on
find cash to inject into deals on refinancing and potentially the stress
refinancing and potentially the stress stay on sales when those don't come
stay on sales when those don't come through Jan Willem higher cost of
through Jan Willem higher cost of renovation and cabbage and Tina
renovation and cabbage and Tina Costa airfare for travel or just the
Costa airfare for travel or just the cost of travel outside of the tulses and
cost of travel outside of the tulses and with that I bring the obsession to an
with that I bring the obsession to an end and thank you all very much for your
end and thank you all very much for your participation thank you all very much
participation thank you all very much Chris
thank you very much Russell that was great really interesting discussion uh
great really interesting discussion uh so thank you to all uh panelists that
so thank you to all uh panelists that was very good thank you
was very good thank you and thank you to all the present
and thank you to all the present presenters this morning
presenters this morning um two great and insightful
um two great and insightful presentations from Graham and Charles
presentations from Graham and Charles who explained the challenge that the
who explained the challenge that the industry are facing now
industry are facing now I'm gonna see my screen's gone pink so
I'm gonna see my screen's gone pink so not quite sure why but um it adds a bit
not quite sure why but um it adds a bit of flavor
of flavor um do we agree that we Face a
um do we agree that we Face a challenging rest of 2023 I suspect that
challenging rest of 2023 I suspect that is true but I know we're facing looking
is true but I know we're facing looking at recovery now in 2024 question mark
at recovery now in 2024 question mark oh
oh fascinating Panel LED by Russell
fascinating Panel LED by Russell um look Hotel assets have performed
um look Hotel assets have performed relatively well over the over the last
relatively well over the over the last few years and that's been encouraging it
few years and that's been encouraging it is clearly an opportunity and despite
is clearly an opportunity and despite all the challenges and investors are
all the challenges and investors are clearly looking for those opportunities
clearly looking for those opportunities esgs does seem to become a bigger and
esgs does seem to become a bigger and bigger issues and I'll be interesting to
bigger issues and I'll be interesting to see how that become agrees in time
see how that become agrees in time um
um however where is the best place to
however where is the best place to invest which of which countries will
invest which of which countries will attract the best investment as we move
attract the best investment as we move forward I think those clear indications
forward I think those clear indications from our uh from our speakers but do you
from our uh from our speakers but do you agree and overall you do get a feeling
agree and overall you do get a feeling there's a real sense of positivity
there's a real sense of positivity spreading in the industry which is great
spreading in the industry which is great and growing I think everyone is a very
and growing I think everyone is a very nervous but q1 I think people are glad
nervous but q1 I think people are glad that q1 performed as it did and we are
that q1 performed as it did and we are seeing
seeing a stronger recovery than perhaps was
a stronger recovery than perhaps was expected
expected um and overall the Outlook is more
um and overall the Outlook is more positive than perhaps people could
positive than perhaps people could feared back at the start of the year
feared back at the start of the year uh thank you for your questions today
uh thank you for your questions today that's obviously a key part thank you
that's obviously a key part thank you for your engagement
for your engagement and uh thank you to all and I look
and uh thank you to all and I look forward to I wish you all a good day and
forward to I wish you all a good day and uh wish you well for the rest of the
uh wish you well for the rest of the time thank you very much indeed
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