Transcript PowerPoint 프레젠테이션

Development of Growth &
Expansion Strategy for Client X.
Final Report – Executive Summary
9 June 2008
Executive Summary
Final Report
Dated 9 June 2008
Agenda
1.
Approach
2.
Industry overview
3.
Sector analysis
4.
Strategic options
5.
Selected strategy
6.
Next steps
2
© 2008 Deloitte & Touche LLP. Private and confidential
Executive Summary
Final Report
Dated 9 June 2008
Outline of the Project
The project consisted of four phases, culminating in final deliverables and board presentation
Phase 1 – Strategy
Validation
Purpose • Bring Client X management up to
same level of understanding of
global and regional hotel industry
• Discussion of:
–
Phase 2 – Review of
Strategic Options
Phase 3 – Detailed analysis
and strategy formulation
• Analysis of 3 strategic options
available to Client X
• Detailed analysis and formulation
of Client X’s strategy based on
the review of strategic options
• Define strategic initiatives and
finalise findings
• Minutes from workshop
• Minutes of workshop
• Chosen strategy and strategic
initiatives
• Chosen strategy for Client X
• Final Board presentation
summarising data supporting
strategic initiatives
• Supporting Client X management
in deciding on strategic option
Phase 4 – Final Deliverables
and Board presentation
market s and segments that
present opportunities for growth
– Agree on preliminary list of
countries for further work
– Growth opportunities via
M&A/JV/Alliance
Output • Minutes from workshop
• List of markets and segments
selected as priority growth
opportunities
• Agreed final form of deliverable
for Board
• Agreed priority for next phase
• List of priority targets
• Agreed priorities for next phase
Actions • Discussion by Client X Board to
agree 3-5 options for further
study in Phase 2
• Agreement of options with
Deloitte
• Discussion by Client X Board to
agree option for further study in
Phase 3
• Confirmation of agreed strategy
• [Implementation]
• Agreement of option with Deloitte
3
© 2008 Deloitte & Touche LLP. Private and confidential
Executive Summary
Final Report
Dated 9 June 2008
Agenda
1.
Approach
2.
Industry overview
•
Market overview
•
Key considerations
3.
Sector analysis
4.
Strategic options
5.
Selected strategy
6.
Next steps
4
© 2008 Deloitte & Touche LLP. Private and confidential
Executive Summary
Final Report
Dated 9 June 2008
Industry Overview: The Shareholder Value Model
The five ‘mega’ trends that will have the greatest impact in share holder value
Brand
Business model
Emerging markets
Mega-trends
Technology
Human assets
5
© 2008 Deloitte & Touche LLP. Private and confidential
Executive Summary
Final Report
Dated 9 June 2008
Industry Overview: Operating Models
Owned/leased
Managed
Franchised
Degree of influence over asset/Ownership model
Whilst all forms of ownership model are employed at the bottom of the market segment scale, the
higher up the chain, the ownership model options narrow to owned and managed for reasons of brand
integrity. However the level of sensitivity to variations in market conditions increases with both degree
of ownership and market segment
Budget
Economy
MidMarket
Upscale
Rarely
used
Rarely
used
Upper
Upscale
Luxury
Degree of volatility1 based
on market conditions
Low
High
Level of market segment
Note:
1. Volatility of profit to hotel branded chain, not individual hotel
Source: Deloitte Analysis
6
© 2008 Deloitte & Touche LLP. Private and confidential
Executive Summary
Final Report
Dated 9 June 2008
Industry Overview: Organisational Structures
There are four organisational structure models. The choice of structure will depend on the stage of
development and suitability for the hotel portfolio given strategic goals
Regional
Global / Functional
Brand-centric
Portfolio
Characteristics
• Organized on a region/country
basis—resources required to run
business self-contained within
geography
• Regions have profit-centre
responsibility
• Some admin/infrastructure
pushed down to local regions
• Organized on a functional basismost key functions reporting up
through a centralized home office
structure
• Standards tightly managed
throughout entire organization
• Often have matrixed reporting
relationships to geographic and
functional/brand leadership
• Organized by brand or grouping of • Businesses are self contained and
brands—most key functional and
managed by holding company
geographic resources required to • Portfolio companies usually have
run business are self contained
substantially different propositions
within brand grouping
• Companies often report directly to
• Standards within brand
the holding company CEO and
organization tightly managed
often separate from other holding
• Brand grouping has profit-centre
company properties
responsibility
Advantages
• Targeted focus on development
and execution in the local
marketplace
• Brand tightly managed and
consistent throughout footprint
• Efficiencies drive lower costs
through use of service centres,
common infrastructure, strategic
sourcing, etc.
• Each brand team has singular
focus and profit responsibilities
Challenges
• Lack of brand standardization
across geographies may dilute
brand value
• Missed opportunities to reduce
costs through consolidation of
functions and activities
• Dual reporting relationships can be • Cross-brand sales or promotions
more difficult to manage
are more difficult to coordinate or
implement (reservations, reward
• Central control of key functions
programs, etc.)
may slow decision-making
•
Missed opportunities to reduce
• Span of control at the executive
costs through consolidation of
level is typically higher than
functions and activities
regional models
• Minimal holding company attention
required
• Limits risk of any brand dilution or
confusion in marketplace
• Holding company has opportunity
to learn from portfolio company
• Cross-brand sales or promotions
are more difficult (reservations,
reward programs, etc.)
• Missed opportunities to reduce
costs through consolidation of
functions and activities
Examples
Source: Deloitte Analysis
7
© 2008 Deloitte & Touche LLP. Private and confidential
Executive Summary
Final Report
Dated 9 June 2008
Industry Overview: Demand & Supply – Global
Europe continues to dominate regarding total spend by international visitors; however, forecasts for
Asia-Pacific focus countries and the Middle East and Africa show high growth by branded hotel room
supply and international visitors
International visitor demand vs. branded room supply, 2007-09
Growth in international visitors
Many deals already
completed in Middle East,
which may suggest fewer
opportunities
10%
Asia Pacific
Middle East
and Africa
8%
Potential in Location
A due to increase in
domestic travel
6%
Europe
Latin America
4%
North America
2%
Total international visitor
spend, size = USD 60bn
0%
0%
5%
10%
15%
20%
Growth in branded rooms
Note:
Supply data is based on all global and regionally branded hotels, international visitor spend data is based on average trip spend excluding spend on transport to destination
Source: Lodging Econometrics; World Travel and Tourism Council; Deloitte Analysis
8
© 2008 Deloitte & Touche LLP. Private and confidential
Executive Summary
Final Report
Dated 9 June 2008
Industry Overview: Demand & Supply – Int’l Overnight and Dom. Trips
Location A leads Asia-Pacific with the largest number of both domestic and international trips
Domestic and International Trips by Country (2007)
Million Trips
1,600
Benchmark
1,400
1,200
1,000
800
600
400
200
0
Greater
China
Japan
Malaysia
Thailand
India
Korea
Indonesia
Maldives
Philippines
Singapore
Vietnam
United
States
United
Kingdom
75
8.3
21
14
5.0
6.4
5.5
0.7
3.1
8.3
2.9
56
30
Domestic
1,387
346
43
92
512
105
240
-
37
1.0
19
1,199
121
Total *
1,461
355
64
106
517
112
245
0.7
40
9.3
22
1,255
151
% Domestic
95%
98%
67%
86%
99%
94%
98%
0%
92%
11%
87%
96%
80%
International
Note:
International demand is determined by international overnight trips for 2007. Domestic trips are for 2007 and are defined as travel of 50 miles or more, each way, which includes an
overnight stay. *Due to rounding of decimal places, totals might not always correspond exactly to the sum.
Domestic
International
Source: Euromonitor; World Travel and Tourism Council; Deloitte Research & Analysis.
9
© 2008 Deloitte & Touche LLP. Private and confidential
Executive Summary
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Dated 9 June 2008
Industry Overview: Demand & Supply – Domestic Trips
Leisure is the main driver for domestic travellers
Domestic Business and Leisure Trips (2007)
Million Trips
1,600
Benchmark
1,400
1,200
1,000
800
600
400
200
0
Data not
available
Greater
China
Japan
Malaysia
Thailand
India
Korea
Indonesia
Maldives
Philippines
Singapore
Vietnam
United
States
United
Kingdom
121
41
5.5
44
122
9.2
82
4
0.2
13
312
20
Leisure
1,265
305
37
48
390
96
158
33
0.8
6.4
887
101
Total
1,387
346
43
92
512
105
240
37
1
19
1,199
121
Business
-
Note:
International demand is determined by international overnight trips for 2007. Domestic trips are for 2007 and are defined as travel of 50 miles or more, each way, which includes an
overnight stay.
Leisure
Business
Source: Euromonitor; World Travel and Tourism Council; Deloitte Research & Analysis.
10
© 2008 Deloitte & Touche LLP. Private and confidential
Executive Summary
Final Report
Dated 9 June 2008
Industry Overview: Demand & Supply – Asia-Pacific
Growth in room supply and demand is expected in Asia-Pacific lead by Location A and India. These
also had the largest number of trips among the Asia-Pacific focus countries for 2007
Total Demand Growth vs. Branded Room Supply Growth (2007-09)
18%
16%
14%
12%
10%
8%
Growth in domestic and international trips
Percent
Vietnam
Phillipines
China
Maldives
Malaysia
Thailand
6%
Indonesia
Singapore
4%
2%
Growth in branded rooms
0%
0%
10%
20%
Note:
Demand growth is international and domestic travellers
Source: Euromonitor; Mintel; Lodging Econometrics; World Travel and Tourism Council; Deloitte Research & Analysis.
11
40%
30%
2007 Total number of
Trips. Size = 250m
© 2008 Deloitte & Touche LLP. Private and confidential
Executive Summary
Final Report
Dated 9 June 2008
Industry Overview: Demand & Supply – Penetration of Room Supply
Compared to the US and UK markets, there is potential within Asia-Pacific for increasing the current
penetration of branded rooms
Hotel Room Supply per Trip by Branded (2006) vs Total Rooms (2007)
Rooms per Thousand Trips
7
Benchmark
5.9
6
5.5
5
4.4
4.0
4
3.5
3.4
3
2.4
2.3
US Branded
2
UK Branded
1.7
1.5
1.4
1.1
0.9
1
0.2
0.3
0.4
0.8
0.5
0.3
0.1
0.2
0.1
0.3
0.2
0.1
0
Greater
China
Japan
Malaysia
Thailand
India
Korea
Indonesia
Maldives
Philippines
Singapore
Vietnam
United States
United
Kingdom
Branded Rooms
Source: Euromonitor; Mintel; Lodging Econometrics; World Travel and Tourism Council; Deloitte Research & Analysis.
12
Total Rooms
© 2008 Deloitte & Touche LLP. Private and confidential
Executive Summary
Final Report
Dated 9 June 2008
Industry Overview: Demand & Supply – UK Penetration in AP (1/2)
Location A, India and Indonesia currently need the most branded hotels to reach UK 2007 penetration
figures
Asia-Pacific Additional Hotel Rooms at UK penetration (2007)1
Million Rooms
7
6.1
6
5
4
3
1.8
2
1.2
0.8
1
0.1
0
Branded
Total
Greater China
0.6
0.5
0.4
Japan
0.3
0.0
0.0
Malaysia
Thailand
0.1
0.0
Korea
India
0.1
0.0
0.0
0.0
Indonesia
Maldives
Philippines
0.0
0.1
Singapore
0.0
Vietnam
417,302
129,386
30,859
45,803
51,207
20,248
35,389
263
13,674
2,270
7,910
6,121,583
1,779,323
477,656
768,100
579,290
293,562
1,223,613
-
141,595
55,336
-48,059
Branded Rooms
Note:
1. Data used: International trips and branded rooms as at 2007; domestic trips estimated for 2007; total rooms as at 2006
Source: Euromonitor; Mintel; Lodging Econometrics; World Travel and Tourism Council; Deloitte Research & Analysis.
13
Total Rooms
© 2008 Deloitte & Touche LLP. Private and confidential
Executive Summary
Final Report
Dated 9 June 2008
Industry Overview: Demand & Supply – UK Penetration in AP (2/2)
Looking forward to the year 2010, there is still a gap to reach UK 2010 penetration for branded rooms
among several of the Asia-Pacific countries, lead by Location A, India and Location D
Asia-Pacific Additional Hotel Rooms at UK penetration (2010)1
Million Rooms
8
7.2
7
6
5
4
3.0
3
2
1.4
1.2
1
0.1
0
Branded
Total
Greater China
0.6
0.6
0.5
Japan
0.3
0.0
0.1
Malaysia
Thailand
0.1
0.0
Korea
India
0.2
0.0
0.0
0.0
Indonesia
Maldives
Philippines
0.0
0.1
Singapore
0.0
0.3
Vietnam
479,411
146,249
36,856
53,652
57,420
22,554
39,631
712
16,077
7,316
9,366
7,174,542
2,956,606
646,215
1,193,828
649,996
328,277
1,442,008
-
165,754
95,425
292,867
Branded Rooms
Note:
1. Data used as follows: International trips and domestic trips estimated for 2010; branded rooms as at 2007; total rooms as at 2006
Source: Euromonitor; Mintel; Lodging Econometrics; World Travel and Tourism Council; Deloitte Research & Analysis.
14
Total Rooms
© 2008 Deloitte & Touche LLP. Private and confidential
Executive Summary
Final Report
Dated 9 June 2008
Industry Overview: Demand & Supply – US Penetration in AP
There is capacity in Asia-Pacific lead by Location A for additional branded rooms in order to reach US
2007 penetration figures; and interestingly in fairly saturated markets such as Location D, there might
still be space for branded hotels
Asia-Pacific Additional Hotel Rooms at US penetration1
Million Rooms
4
3.5
3
2
1
0.7
0.6
0.2
0.0
0.2
0.4
0.1
0.1
0.1
0.0
0.2
0.0
0.0
0.0
0.1
0.0
0.0
0.0
0
-0.3
-1
-1.3
-2
Branded
Total
Greater China
Japan
Malaysia
Thailand
India
Korea
Indonesia
Maldives
Philippines
Singapore
Vietnam
590,774
185,663
45,470
66,613
70,741
28,246
49,146
841
19,548
10,792
11,335
3,456,807
-1,311,385
166,869
52,092
360,456
175,635
662,619
-
82,067
-19,078
-308,119
Branded Rooms
Note:
1. Data used: International trips and branded rooms as at 2007; domestic trips estimated for 2007; total rooms as at 2006
Source: Euromonitor; Mintel; Lodging Econometrics; World Travel and Tourism Council; Deloitte Research & Analysis.
15
Total Rooms
© 2008 Deloitte & Touche LLP. Private and confidential
Executive Summary
Final Report
Dated 9 June 2008
Industry Overview: Demand & Supply – Room Penetration
The majority of the Asia-Pacific focus countries have lower room supply penetration relative to Europe
and North America. Global and regional brands account for a smaller proportion of room supply
outside North America
Room Supply Penetration (2007)
Rooms per Thousand Inhabitants
16
14.5
13.7
14
12.1
11.6
12
10
5.1
9.3
4.7
8
6.8
13.7
11.4
6
5.8
5.6
7.6
3.6
4.2
9.4
4
6.9
4.9
1.8
2
1.0
0.8
Europe
UK
N.
America
US
Latin
America
5.1
2.2
4.1
1.2
1.0
1.8
1.7
0
Total
n/a
0.4
0.2
Asia
Pacific
ME &
Africa
0.8
0.2
0.1
1.1
0.1
0.0
0.1
China
India
Indonesia
3.1
0.7
Japan
0.9
Malaysia Maldives
Branded Rooms
3.2
0.3
1.0
0.2
0.1
0.3
Philip.
S'pore
1.5
1.2
1.4
0.5
0.1
S. Korea Thailand Vietnam
Non-Branded Rooms
Total Rooms
Note:
Supply figure for India does not include lower budget. Total Location D supply figure includes ryokans (Location Dese Inns)
Source: UN Estimates; National Statistics offices; Lodging Econometrics; Mintel; Deloitte Research & Analysis
16
© 2008 Deloitte & Touche LLP. Private and confidential
Executive Summary
Final Report
Dated 9 June 2008
Industry Overview: Demand & Supply – Branded Rooms by Chain Scale
The luxury segment accounts for c. 18% of total branded room capacity in Asia Pacific, which
compares to c. 3% and 4.5% in North America and Europe, respectively
Branded Supply by Chain Scale (2007)
Share of Branded Rooms
Regions
Countries
100%
80%
60%
40%
20%
0%
Latin
N.
America America
Europe
ME &
Africa
Asia
Pacific
China
India
Indonesia
Note:
Supply data is based on all global and regionally branded hotels only
Source: Lodging Econometrics; Deloitte Research & Analysis
Japan
Malaysia Maldives
Budget
17
Economy
S'pore
Philip.
Midscale
S. Korea Thailand
Upscale
Upper Upscale
Vietnam
Luxury
© 2008 Deloitte & Touche LLP. Private and confidential
Executive Summary
Final Report
Dated 9 June 2008
Industry Overview: Demand & Supply – Upper Upscale / Luxury Valuation
Hotel values have increased on average nearly 6% p.a. between 2002-06, with cities in Location A,
Malaysia, Indonesia and Singapore
Upper Upscale / Luxury Valuation per Key (2006)
USD Thousands 2006 vs CAGR 2002-06
900
Tokyo
800
700
Hong Kong
600
500
400
Seoul
Singapore
Shanghai
300 $292k
Beijing
200
Bangkok
Phuket
Taipei
Bali
100
0
-2%
Kuala Lumpur
Jakarta
Manila
5.6%
0%
2%
4%
6%
8%
10%
12%
Source: 2007 Asia Hotel Valuation Index; Deloitte Research & Analysis
18
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Executive Summary
Final Report
Dated 9 June 2008
Industry Overview: Global Hotel Operators – Overview
Global hotel operators have achieved success by offering a portfolio of brands tailored to specific
customer segments, and creating operational efficiency by leveraging the size and scale of their
distribution.
Global Hotel Operators
Indicative
Competitor A
Competitor B
Competitor C
Competitor D
Competitor E
Number of brands
7
10
15
12
10
Dominant current
operating model
Franchise
Franchise
Managed
Owned/Leased
Managed
Dominant geographic
position
Americas
Americas
Americas
EMEA
Americas
Mid-market
Budget
Upscale
Budget
Upscale
Initial growth through
acquisitions
Initial growth through
acquisitions
Initial organic growth and
acquisition of new segments
Several brands through
acquisitions
Brand growth through
acquisition
Current growth strategy
Managed and franchised
Franchise
Managed
Owned/Managed
Managed
System-wide number of
hotels
3,949
6,544
2,999
3,871
925
Pipeline as share of
current supply
40%
19%
24%
41%
44%
Regional
Global/Functional
Global/Functional
Brand-centric
Global/Functional
Dominant market
segment
Dominant historical
growth strategy
Dominant organisational
model
Source: Deloitte Research and Analysis
19
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Executive Summary
Final Report
Dated 9 June 2008
Industry Overview: Global Hotel Operators – Financial Summary
Global hotel operators have achieved high return on capital invested by focussing on management
contracts and real-estate transformation.
Financial Results and Key Performance Indicators (2007)
Indicative
Competitor A
Competitor B
Competitor C
Competitor E
Competitor D
Total Revenue, $m
1,768
4,360
4,415
6,153
11,132
Market Cap, $m
4,470
3,864
12,777
10,469
15,837
EV / EBITDA
10.5x
5.7x
12.0x
11.4x
9.2x
P/E
12.0x
10.3x
18.8x
19.8x
11.9x
17
9
25
13
13.6
72
871
121
110
77
Occupancy, %
69.6
73.31
73.2
70.1
67.6
ADR, $
103
1181
165
157
114
EBITDA, $m
437
892
1,385
1,164
1,905
EBITDA Margin, %
27.0
20.5
31.4
18.9
17.0
Financial Results
Return on capital invested1, %
Key Performance Indicators2
RevPAR, $
Note:
1 Due to information availability the figure is based upon the financial statements as at 2004 year end.
Source: Deloitte Research & Analysis
20
© 2008 Deloitte & Touche LLP. Private and confidential
Executive Summary
Final Report
Dated 9 June 2008
Industry Overview: Regional Hotel Operators – Overview (1/2)
APAC brands have traditionally grown from an iconic flagship properties, and were first required to
own a critical mass of their own hotels before expanding beyond APAC or into management contracts.
Regional Hotel Operators
Indicative
AAAA
BBBB
CCCC
DDDDD
EEEE
2
1
2
2
2
Owned
Owned
Owned
Owned
Owned
Location A
Location A
Hong Kong
Thailand
India
Dominant market
segment
Upper upscale
Luxury
Luxury
Luxury
Upper Upscale/Luxury
Grown from iconic
flagship property?





Dominant historical
growth strategy
Owned
Owned
Owned
Owned
Owned
Owned/Managed
Managed
Owned
Owned/Managed
Owned/Managed
52
21
9
22
102
100%
86%
9%
209%
88%
Number of brands
Dominant operating
model
Dominant geographic
position
Dominant current growth
strategy
Number of existing
hotels
Pipeline as a share of
current supply
Source: Deloitte Research & Analysis
21
© 2008 Deloitte & Touche LLP. Private and confidential
Executive Summary
Final Report
Dated 9 June 2008
Industry Overview: Regional Hotel Operators – Overview (2/2)
APAC brands have traditionally grown from an iconic flagship properties, and were first required to
own a critical mass of their own hotels before expanding beyond APAC or into management contracts.
Regional Hotel Operators (cont’d)
Indicative
AAA
DDD
BBB
CCC
EEE
FFF
8
2
1
2
1
1
Managed
Owned
Managed
Owned
Managed
n/a1
Spain
Location D
APAC
Location A
Americas
Indonesia
Dominant market
segment
Mid-market/Upscale
Upscale
Luxury
Budget
Luxury
Luxury
Grown from iconic
flagship property?






Dominant historical
growth strategy
Acquisitions
Owned
Owned
Owned
n/a1
Owned
Owned/Managed
Managed
Managed
Owned/Managed
Managed
Owned
Number of existing
hotels
328
63
8
232
80
18
Pipeline as a share of
current supply
10%
n/a1
160%
15%
152%
n/a1
Number of brands
Dominant operating
model
Dominant geographic
position
Dominant current
growth strategy
Note:
1. No data/information could be obtained.
Source: Deloitte Research & Analysis
22
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Executive Summary
Final Report
Dated 9 June 2008
Industry Overview: Regional Hotel Operators – Financial Summary
Asia Pacific chains have relatively high EV/EBITDA multiples and relatively low return on capital
invested as a result of their asset heavy strategies.
Financial Results and Key Performance Indicators (2007 unless otherwise stated)
Indicative
Financial Results
Total Revenue, $m
1,002*
558
582
211*
430*
1,583
607
253*
Market Cap, $m
8,341
1,635
2,095
696
1,873
3,700
1,946
3,800*
EV / EBITDA
23.6x
12.8x
19.3x
17.9x
14.7x
7.8x
14.1
No data available
P/E
22.4x
15.2x
5.1x
12.1x
38.7x
10.0x
20.4
58.2x
7*
8
4
8*
10.1*
11
16
11.6
102*
215
316
178*
34**
65
No data available No data available
70
74
68
65*
71**
69.5
No data available No data available
ADR, $
146*
291
465
274*
48**
94
No data available No data available
EBITDA, $m
350*
190
194
70*
111
410
173
80*
EBITDA Margin, %
34.9*
34.1
33
33*
26
25.9
28
32*
Return on capital invested1, %
Key Performance Indicators2
RevPAR, $
Occupancy, %
Note:
1 Based on continuing operations, excluding special items; 2 Company operated; 3 Relevant data is not available for JAL, Raffles, and Four Seasons. * Figure is based on 2006
figures due to information availability. ** Jin Jiang figures are based upon their 3-Star brand. This provides a best estimate given the width of their offerings
Source: Company Data; Deloitte Research & Analysis
23
© 2008 Deloitte & Touche LLP. Private and confidential
Executive Summary
Final Report
Dated 9 June 2008
Agenda
1.
Approach
2.
Industry overview
•
Market overview
•
Key considerations
3.
Sector analysis
4.
Strategic options
5.
Selected strategy
6.
Next steps
24
© 2008 Deloitte & Touche LLP. Private and confidential
Executive Summary
Final Report
Dated 9 June 2008
Key Considerations: Strategic Framework Initial Thoughts
We have identified a range of key considerations for Client X, which fall broadly into six categories
Operational
Excellence
Location
Most significant driver of
guest hotel choice
A critical driver in delivering
financial return
– Very few people choose a hotel
brand and then choose a
location
– No value in delivering low
profitability on high occupancy
and ADR
Returns first, brand fit
second
– Poor performance can destroy
benefits of strong brand and
location
– A key consideration for owners
when selecting operators
Portfolio
Approaches
Single segment approach
Home comfort
– With the exception of Four
Seasons, all luxury single
segment operators have built
growth on the foundation of
one or two iconic properties
– With the exception of Four
Seasons, all the major global
and regional players have
expanded close to home
before significant global
expansion
– Organisations will have their
desired location lists but
market opportunity often
overtakes
Number 1 core competency
– Vital that have strong core
operations to support future
growth – organic or acquisition
– Resort developments are
aimed at capturing the leisure
market of their customers
– Organic growth focused on
locations where there is
capacity within a segment
– All successful operators have
either CEO or COO with many
years operational experience
often with same organisation
and often starting from very
low level
– In the past 2 years the
incorporation of a residential
element has been required to
make new builds financially
viable
– Need stable central ‘system’ to
support growth to enable new
properties to be transitioned
into the organisational
smoothly
Multi segment approach
– Can create tension between
Brand and Development
– Led to most brands having
significant range of quality and
locations
– Only strongest brands can
adopt more strategic approach
– In the absence of property
asset value increases, new
management contracts are one
of the key sources of
increasing financial return
– Development pipeline now THE
most important KPI for the
major listed hotel operators
– Create pool of expertise that
can be exported to new
properties to ensure rapid
adoption of standard
processes and procedures
– This is reflected in the
percentage of property
portfolios in their domestic
markets
Luxury brands
– Almost all luxury brands have
extended into resorts and
residences (both owned and
fractional)
– Led to most development
approaches being more tactical
than strategic
Growth Patterns
– Second stage expansion is
often in overseas regions with
strong brand or cultural
recognition
Home advantage
– Easier to support new hotels
from a logistical perspective as
can leverage current suppliers,
staff redeployment is easier
and management can maintain
closer oversight role. There are
also obvious time zone
advantages.
– Many organisations have a
luxury brand to deliver a ‘halo’
effect
– Need to build critical scale of
operations before adding
additional strains of distant
operations
– The core business is midmarket and the luxury brand
delivers an aspiration for these
guests
Play to your
Strengths
Many hospitality
organisations have natural
strengths
– Iconic properties
– Strong brand names
– Deep heritage
– Strong cultural links
– Corporate owners
– Access to capital
Talent
Global and regional
hospitality organisations
invest significantly in their
talent
– One of most significant assets
particularly since property
assets typically disposed
– At the heart of operational
efficiency
– At the heart of delivering the
branded experience
Successful organisations
have developed ways of
harnessing these strengths
– Becomes more significant the
higher the segment
– Large, high quality talent pool
required to support growth
– Increasingly in short supply
and predicted to get more so
– Recruitment and retention
Its not just about operational
training
– Staff engagement is just as
important – feeling emotionally
connected to the organisation
– Structured career development
– It is likely that there is stronger
brand awareness in countries
closer to home and also easier
to build this brand awareness
in weaker countries due to
cultural similarities
– Few organisations have midtier resort brands
Source: Deloitte Research & Analysis
25
© 2008 Deloitte & Touche LLP. Private and confidential
Executive Summary
Final Report
Dated 9 June 2008
Agenda
1.
Approach
2.
Industry overview
3.
Sector analysis
•
Region
•
Country
•
City
4.
Strategic options
5.
Selected strategy
6.
Next steps
26
© 2008 Deloitte & Touche LLP. Private and confidential
Executive Summary
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Dated 9 June 2008
Region Analysis: Summary (1/2)
On a regional level, the ability for Client X to enter region in the short to medium term is high only in
Asia-Pacific
Ability for Client X to Enter Region in Short to Medium Term
Indicative
Requirements
Europe
North America
Middle East &
Africa
Asia Pacific
Ability to develop management skills, detailed operating
procedures and central shared services
Ability for Client X to oversee operations from Location X
Ability to generate efficiencies from increased scale of
operations
Summary
Source: Deloitte Research & Analysis
27
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Dated 9 June 2008
Region Analysis: Summary (2/2)
Demand and supply drivers are positive in both Asia-Pacific and the Middle East & Africa
Summary of Key Drivers
Indicative
Key Drivers
Europe
North America
Middle East &
Africa
Asia Pacific
Demand drivers
Supply drivers
Historical performance
Ability for Client X to enter region in short to medium term
Investigate further?
Source: Deloitte Research & Analysis
28
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Dated 9 June 2008
Region Analysis: Historical Performance – Global
Luxury and upper upscale have outperformed the other segments on average in each region
ADR by Market (2005-07)
Occupancy by Market (2005-07)
RevPAR by Market (2005-07)
USD 2007 vs CAGR 2005-07
Occupancy 2007 vs PP Change 2005-07
USD 2007 vs CAGR 2005-07
300
75%
200
180
250
160
70%
140
200
150
67.3%
120
65%
$136
100 $92
80
100
60
60%
40
50
20
0
-5%
8.3%
0%
5%
10%
15%
55%
-2%
0.9%
-1%
0%
1%
Budget/Ec Mid-scale
2%
Upscale
3%
U. Upscale
4%
0
0%
9.1%
5%
10%
15%
Luxury
Americas
Asia-Pacific
EMEA
Note:
Growth rates based on local currency data
Source: Smith Travel Research; Deloitte Research & Analysis
29
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Executive Summary
Final Report
Dated 9 June 2008
Agenda
1.
Approach
2.
Industry overview
3.
Sector analysis
•
Region
•
Country
•
City
4.
Strategic options
5.
Selected strategy
6.
Next steps
30
© 2008 Deloitte & Touche LLP. Private and confidential
Executive Summary
Final Report
Dated 9 June 2008
Country Analysis: Overview
The focus countries have been split into the top four, middle four and bottom three through the
quantification of key success factors and subsequent ranking of these
Quantification of key success factors
Ranking of countries based on key success factors
• The grouping has been determined by ranking the each country
from 1 to 11 based on the relative performance of the key drivers,
with 1 being the country with the best performance and 11 being
the country with the worst performance
The key success factors for Client X to be able to enter these countries
have been identified as:
• Economic drivers
• We have primarily ranked the growth metrics in order to identify
markets where there is high potential for future growth
• Demand drivers
• Supply drivers
• Absolute metrics are included to show relative size of metric
• Ability for Client X to implement
• Historical performance
• An analysis was performed determining the quantum of each of
these success factors
31
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Country Analysis: Ranking by Degree of Opportunity for Client X
The mid-market and upscale opportunity for Client X appears to be highest in Location A, followed by
Location B, Thailand, Location Y and the Philippines
Ranking of Mid-market and Upscale Country Markets
Indicative Opportunity
Country
Rank
Location A
1
Location B
2
Thailand
3
Location Y
4
Philippines
5
Source: Deloitte Research & Analysis
32
© 2008 Deloitte & Touche LLP. Private and confidential
Executive Summary
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Dated 9 June 2008
Country Analysis: Country Focus – Location Summary (1/2)
Key forward-looking looking drivers have been assessed for each country…
Summary of Key Forward-looking Drivers
Indicative
Economy
Location Z
Dep.
Demand Drivers
GDP Growth
2007-15
(%)
Int’l Trips
2007
(Million)
Int’l Trips
Growth
2007-15
(%)
Domestic
Trips
2006
(Million)
Location Y
4.9%
6.4
3.0%
102
1%
19.6
5.5%
Location D
2.3%
8.3
3.2%
341
1%
216.5
Location A
13.3%
74.7
6.4%
1,196
10%
India
11.8%
5.0
6.7%
445
Singapore
5.5%
8.3
4.3%
Thailand
5.9%
14.4
Philippines
9%
Location B
Supply Drivers
Penetration
(Rooms per
thousand trips)
Penetration
(Rooms per
Million
Inhabitants)
n/a
0.1
1.2k
4.6%
1,908
0.3
12.1k
105.4
16.8%
361
0.2
1.0k
17%
22.4
10.4%
n/a
0.1
0.1k
906
11%
1.2
7.1%
230
1.5
6.8k
4.2%
85
8%
8.5
7.0%
825
0.3
5.6k
3.1
5.8%
33
15%
3.6
7.1%
485
0.3
0.3k
13.8%
2.9
8.8%
17
16%
1.5
8.5%
299
0.3
1.5k
Malaysia
6.2%
21.0
7.7%
39
6%
2.1
8.9%
111
0.4
5.8k
Indonesia
12.3%
5.5
7.5%
226
7%
7.7
12.1%
100
0.1
1.2k
Maldives
n/a
0.7
4.7%
n/a
n/a
0.01
0%
n/a
1.4
n/a
Ranked










Country
Domestic
Dom. Tourism Dom. tourism Location Z
Trips Growth
Spend1
spend growth departures
2007-11
2007
2007-15
2006
(%)
($bn)
(%)
(Thousands)
Note:
1. Excludes business spend as data unavailable
Source: See reference pack
33
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Country Analysis: Country Focus – Location Summary (2/2)
…followed by key historic drivers such as valuations, key performance indicators and profitability,
and Client X’s ability to implement
Summary of Key Historic Drivers
Indicative
RevPAR Performance1
Country
Ability to
implement
RevPAR Growth in local currencies
Profitability
Valuation
Key Cities
2007
(USD)
Key Cities
Growth
2006-07
(%)
Luxury
2005-07
(CAGR)
Upscale /
U. Upscale
2005-07
(CAGR)
Mid-market
2005-07
(CAGR)
Budget
2005-07
(CAGR)
GOP Margin2
2006
(%)
Valuation
per Key
2006
(USD ‘000s)
Val. Growth
per Key
2002-06
(CAGR)
Location Y
Very high
138
6%
3%
-4%
n/a
n/a
n/a
387
4%
Location D
High
119
8%
8%
-2%
2%
4%
28%
831
5%
Location A
High
118
3%
n/a
0%
-2%
n/a
44 – 50%
389
8%
India
Low
207
32%
28%
30%
n/a
n/a
56%
n/a
n/a
Medium
141
22%
23%
21%
31%
n/a
42%
384
10%
Thailand
High
80
1%
2%
8%
14%
n/a
46%
194
(0.4)%
Philippines
High
79
15%
16%
11%
n/a
n/a
n/a
96
4%
Location B
High
96
35%
n/a
30%
n/a
n/a
n/a
n/a
n/a
Malaysia
High
63
10%
11%
15%
n/a
n/a
30%
131
9%
Indonesia
High
56
34%
16%
12%
17%
n/a
26-26%
116
4%
Maldives
Medium
4301
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
Ranked










Singapore
Note:
1. Maldives figures for RevPAR and RevPAR growth are based upon Luxury and Upper Upscale hotels only; 2. GOP Margin is Income Before Fixed Charges based upon capital city
figures with the following exceptions: Location A (Beijing, Hong Kong and Shanghai), India (Mumbai), Indonesia (Jakarta, Bali)
Source: See reference pack
34
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Country Analysis: Recap – Location Drivers Ranking (1/2)
Location A and Location Y appears to provide the best opportunities for Client X
Ranking of Key Forward-looking Drivers
Indicative
Location Z
Economy
Dep.
Country
Ability to
implement
Demand Drivers
Int’l Trips
Growth
2007-15
(Rank)
GDP
Growth
2007-15
(Rank)
Critical
Very High
High
Location A
High
4
2
74.7
5
1,1961
5
105.4
1
4
3
Location Y
Very high
n/a
9
6.4
11
102
10
19.6
9
2
4
Location B
High
5
1
2.9
1
17
2
1.5
5
7
6
Philippines
High
3
5
3.1
6
33
3
3.6
6
6
2
Thailand
High
2
7
14.4
9
85
7
8.5
8
8
7
Indonesia
High
8
3
5.5
3
226
6
7.7
2
3
5
Malaysia
High
7
6
21
2
39
8
2.1
4
9
8
Low
n/a
4
5
4
445
1
22.4
3
1
1
Singapore
Medium
6
8
8.3
8
1
4
1.2
7
12
9
Location D
High
1
10
8.3
10
341
9
216.5
10
5
10
11
11
n/a
Weighting
Domestic
Trips Growth
2007-11
(Rank)
Dom.
Tourism
Spend1
2007
($bn)
Location Z
departures
2006
(Rank)
Int’l Trips
2007
(Million)
Domestic
Trips
2006
(Million)
Supply Drivers
Dom. tourism
spend growth
2007-15
(Rank)
Penetration
Rooms/Trip
(Rank)
High
Penetration
Rooms/Pop’n
(Rank)
High
Top 2
Middle 5
Bottom 4
India
Maldives
Medium
n/a
n/a
0.7
7
n/a
n/a
0.01
Note:
Location A figures for phase 1 based on Greater Location A; 1. Domestic trips for Location A includes mainland Location A only
Source: See reference pack
35
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Dated 9 June 2008
Country Analysis: Recap – Location Drivers Ranking (2/2)
Location A and Location Y appears to provide the best opportunities for Client X
Ranking of Key Historic Drivers
Indicative
RevPAR Performance
Country
Key Cities
2007
(USD)
Weighting
Key Cities Growth1
2006-07
(Rank)
RevPAR Growth in local currencies
Luxury
2005-07
(CAGR)
U. Upscale/
Upscale
2005-07
(Rank)
Medium
Mid-market
2005-07
(Rank)
Profitability
Budget
2005-07
(Rank)
Medium
GOP Margin2
2006
(Rank)
Valuation
Valuation
per Key
2006
(USD ‘000s)
Medium
Val. Growth per
Key
2002-06
(Rank)
Medium
Top 2
Location A
118
9
n/a
8
5
n/a
2
389
3
Location Y
138
8
7
10
n/a
n/a
n/a
387
6
Location B
96
1
n/a
2
n/a
n/a
n/a
n/a
n/a
Philippines
79
5
4
6
n/a
n/a
n/a
96
7
Thailand
80
10
8
7
3
n/a
3
194
8
Indonesia
56
2
3
5
2
n/a
7
116
5
Malaysia
63
6
5
4
n/a
n/a
5
131
2
India
207
3
1
1
n/a
n/a
1
n/a
n/a
Singapore
141
4
2
3
1
n/a
4
384
1
Location D
119
7
6
9
4
1
6
831
4
Maldives
4301
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
Middle 5
Bottom 4
Source: See reference pack
36
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Country Analysis: Drivers – Economic and Demographic
The selected countries boast encouraging demographic indicators and are forecast continued strong
demand growth
Summary of Key Forward-looking Economic and Demographic Drivers
Indicative
Economy
Average Population Demographics and Spending
Middle Class
Disposable Income
Total Income held
Estimate (2007;
by middle class1 (%)
USD Billion)
PDI per Capita
(2007; USD)
Consumer
Expenditure
(2007; USD)
Intl Receipts 2006
(USD Billion)
Total Receipts
Growth 2006-112,3
(CAGR)
491.4
1,063
910
34.26
9.7%
34%
21.9
706
1,098
2.77
7.4%
49
42%
230.4
11,196
10,790
5.84
4.5%
3,700
63
35%
42.2
1,814
1,980
10.51
5.5%
810
84
36%
11.4
369
510
2.30
1.4%
GDP per Capita
(2007; USD)
Total Population
(Million)
Location A2
2,450
1,291
35%
Philippines
1,582
77
Location Y
19,680
Thailand
Country
Location B
Demand
Note:
1. Percentage of income received by the 40% of households with middle bracket of income; 2. Location A figures for phase 2 focus on Mainland Location A
Source: UNICEF; Price Waterhouse Coopers; The Economic Intelligence Unit; Deloitte Research & Analysis
37
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Country Analysis: Drivers – Investment in Tourism
Chinese investment in travel and tourism is both significantly larger and forecast to grow more
quickly than other focus countries
Capital Investment (2000-20)1
Capital Investment (2007): Public vs Private
$ Billions
Percent
CAGR
450
Historic
100%
2000-07 2007-20
Forecast
Location A
19.0%
125.8
1.7
15.3
3.8
2.6
0.6
12.8
10.1%
90%
400
0.4
1.5
0.04
Public
1.5
Private
80%
350
70%
300
60%
250
50%
113.0
200
40%
150
1.3
12.7
3.2
South Korea
Thai
30%
100
20%
50
0
2000
2004
2008
2012
2016
2020
Location Y
2.5%
6.4%
Thailand
4.5%
6.9%
Philippines
(0.8)%
5.7%
Location B
14.0%
6.5%
10%
0%
China
Philippines
Vietnam
Note:
Private capital investment includes foreign investment
Source: World Travel and Tourism Council; Deloitte Analysis
38
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Country Analysis: Historical Performance – RevPAR
RevPAR performance varies, both in absolute level and growth CAGR (2005-07), by both geography
and market segment
RevPAR by Market (2005-07)
USD 2007 vs CAGR 2005-07
300
250
Budget /
Economy
Mid-/scale
Upscale /
Luxury
Upper Upscale
Location A
200
Hong Kong
India
Indonesia
Location D
150
Malaysia
Philippines
$123
Singapore
Location Y
100
Thailand
Location B
50
0
-10%
12.1%
-5%
0%
5%
10%
15%
20%
25%
30%
35%
40%
Note:
Location D Budget/Economy, Malaysia Upscale / Upper Upscale, and Philippines Upscale / Upper Upscale are all 2006-07 Percentage Change; Growth rates based on local currency data
Source: Smith Travel Research; Deloitte Research & Analysis
39
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Dated 9 June 2008
Country Analysis: Historical Performance – Occupancy
However occupancy shows a more varied picture with a higher proportion of categories showing
negative change (2005-07)
Occupancy by Market (2005-07)
Occupancy 2007 vs Percentage Point Change 2005-07
95%
90%
85%
Budget /
Economy
Mid-/scale
Upscale /
Luxury
Upper Upscale
Location A
Hong Kong
80%
India
Indonesia
Location D
75%
Malaysia
71.8%
Philippines
Singapore
70%
Location Y
Thailand
Location B
65%
60%
55%
-10%
1.9%
-5%
0%
5%
10%
15%
Note:
Location D Budget/Economy, Malaysia Upscale / Upper Upscale, and Philippines Upscale / Upper Upscale are all 2006-07 PP Change; Growth rates based on local currency data
Source: Smith Travel Research; Deloitte Research & Analysis
40
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Dated 9 June 2008
Country Analysis: Drivers – Business and Tourism Country Rating
The overall business environment and travel and tourism prioritisation scores appear to be strongest
in Location A, Location Y and Thailand
Business Environment and Travel and Tourism Prioritization Score Card (2007)
Rating (1 = low)
Country
Business Environment Rating1
Government prioritization of
travel and tourism2
Effectiveness of marketing and
branding2
Location A
5.6
5.2
4.7
Philippines
5.9
5.1
4.4
Location Y
7.1
5.1
5.1
Thailand
6.7
6.1
5.9
Location B
4.8
5.4
4.7
Very Good
Good
Moderate
Overall outlook
Poor
Note:
1. The business environment rankings model examines ten separate criteria or categories, covering the political environment, the macroeconomic environment, market opportunities,
policy towards free enterprise and competition, policy towards foreign investment, foreign trade and exchange controls, taxes, financing, the labour market and infrastructure.
Government prioritization examines the level of government consideration given to travel and tourism in comparison to other industries. 2. The effectiveness of marketing and
branding relates to that used to attract tourists into the country. In both cases, the scale is from 1 to 7; The Business Environment rating scale is from 1 to 10
Source: World Economic Forum: The Travel & Tourism Competitiveness Report 2008; Economic Intelligence Unit: Country Forecast February 2008; Deloitte Research & Analysis
41
© 2008 Deloitte & Touche LLP. Private and confidential
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Dated 9 June 2008
Country Analysis: Rooms Supply, Pipeline and Penetration
Whilst Location B has the largest pipeline as a proportion of existing hotels, Location A has the
largest absolute number of hotels in the pipeline
Mid-Market/Upsc. Room Supply and Pipeline (2007-10)
Percentage, Thousand Rooms
Change in Mid-Market/Upscale Room Supply
Penetration (2007-09)
Rooms per Thousand International and Domestic Travellers
100%
90%
200,586
8,660
13,007
2,702
385
4,851
220
184
21,161
1,162
3,839
8%
540
1,434
7%
80%
70%
65,690
500
5,264
6%
1,455
60%
5%
50%
4%
489
40%
3%
5.1%
30%
113,229
1,817
4,447
13,301
2%
1,355
20%
3.5%
1.8%
2.1%
1%
10%
0.2%
0%
0%
Greater China
Philippines
South Korea
Current
Thailand
2008
2009
China
Vietnam
Philippines
South Korea
Thailand
Vietnam
2010+
Note:
Supply data is based on all global and regionally branded hotels only
Source: Lodging Econometrics; Deloitte Research & Analysis
42
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Country Analysis: Key Performance Indicators
Location B, Thailand and Philippines have shown good RevPAR growth, predominantly driven by ADR
growth, with some occupancy gains in Location B
ADR by Country (2005-07)
Occupancy by Country (2005-07)
RevPAR by Country (2005-07)
USD 2007 vs CAGR 2005-07
Occupancy 2007 vs PP Change 2005-07
USD 2007 vs CAGR 2005-07
180
140
80%
160
120
140
75%
100
120
100
80
$94
70%
$61
80
60
60
65%
40
40
65%
20
20
9.7%
0
-10%
0%
10%
20%
30%
60%
-10%
(5.0)%
-5%
0%
5%
10%
0
0%
5.6%
5%
10%
15%
20%
Mid-Market
25%
30%
Upscale
Location A
Philippines
Location Y
Thailand
Note:
Average indicators are based on weighted average and therefore skewed to towards the large Location A mid-market/upscale room numbers
Growth rates based on local currency data; Location B is a combination of upscale and upper upscale KPIs
Source: HotelBenchmark; Lodging Econometrics; Deloitte Research & Analysis
43
Location B
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Country Analysis: Profitability
Mid-Market/Upscale room profitability grew across all countries; the exception being Location Y
Room Revenue & Profitability by Country (2005-06)
Comparative RevPAR Index 2005, 2006 vs. GOP Margin 2005, 2006
140
2006
120
2005
Location Y
100
80
Location B
Average 2006: 77
Average 2005: 71
Thailand
60
Philippines
Locati
on A
40
20
0
15%
Average 2005: 38.1%
20%
25%
30%
35%
Average 2006: 40.4%
40%
45%
50%
55%
60%
Note:
USD RevPAR 2005 and equivalent USD RevPAR 2006 assuming local currency growth
Source: HotelBenchmark; Deloitte Analysis
44
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Country Analysis: Illustrative Supply Opportunity
Location A Mid-Market/Upscale opportunity drastically exceeds that of the other countries; with
Thailand and Location B showing a still sizeable opportunity
Illustrative Supply Opportunity (2009-18)
Thousand Mid-Market/Upscale Rooms
247.2k
250
50
245
45
240
40
35
30
25
20
15
10
21.6k
20.6k
5
0
China
Relative #
hotels:
~1050
3.2k
0.9k
Philippines
South Korea
Thailand
Vietnam
~12
~4
~91
~102
Note:
Estimates are based on a number of assumptions and should be seen as illustrative and not regarded or relied upon as a forecast by Deloitte of expected future market behaviour.
Actual outcome could be materially different to that shown
Source: World Travel & Tourism Council; Lodging Econometrics; Hotel Benchmark; Deloitte Research & Analysis
45
© 2008 Deloitte & Touche LLP. Private and confidential
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Country Analysis: Illustrative Yields – New Build Hotel
Location B offers the highest yields with the least investment. The increases in hotel IBFC in
Philippines and Thailand have been higher than the increases in construction costs, resulting in
increasing yields
Illustrative Mid-market Yield by Country (2005-06)
Construction Costs per Room Thousand USD vs. Relative Yield
200
2006
180
Location Y
2005
160
140
120
Thailand
100
Location B
80
Philippines
Location A
60
40
20
0
10%
Construction costs increasing faster
than increases in hotel IBFC
15%
Construction costs increasing less
than increases in hotel IBFC
20%
25%
Note:
Construction costs exclude land costs; IBFC excludes ownership costs (rates, insurance, rent, interest,
management fees, depreciation and taxes). Relative yield equals IBFC per key divided by construction costs per key
Source: Hotel Benchmark; Davis Langdon; Deloitte Research & Analysis
46
30%
35%
Annual Income before Fixed Charges per available room,
expressed as a percentage of construction costs per Room
© 2008 Deloitte & Touche LLP. Private and confidential
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Country Analysis: Location YHotel Market – Overview
The Location Yinbound market remains stable, while the outbound and domestic market are growing
at high rates
Inbound
•
•
•
Except for the dent in 2003
which was caused by the
outbreak of SARS, the
Location Ytourism market is
growing at a steady rate of
4.2% and is forecasted to grow
at 4.5% in the near future.
76% of all visitors come from
nearby Asian countries such
as Location D (37%), Location
A (14%) and Location C (5%)
and also some from the U.S
(10%). The strongest growth is
of Location A (16%) and
Location C (24%).
Outbound
•
•
However, receipts from tourists
of 5.6 Trillion Won is growing
at 3% which is lower than that
of visitors, despite an
increased length of stay, but
because of a decrease in
spend per night
Location Y’s outbound tourism
market is growing at a dynamic
rate of 10.4%, while
expenditure is growing at a
even higher rate of 12% driven
by the strong Location Z Won.
However, departure and
expenditure growth is
forecasted to slow to 4.4%.
Domestic
•
The domestic travel market
has been growing at a rate of
13% but is forecasted to slow
down to 1.4%.
•
There was a dip when the
Location Z Won strengthened,
which was balanced by an
increase in international travel.
•
Asian countries such as
Location A, Location B,
Location C and Location D
remain the most popular
countries to visit, representing
more than 75% of all outbound
trips.
Domestic travel spend
increased even when the
number of travellers decreased
indicating a higher spend per
trip.
–
•
Increase from 49 k won/trip
in 2005 to 55.3 k won/trip
in 2006
include the two biggest cities
of Location Z – Location E and
Location X, represent 50% of
all trips.
Hotels
Drivers
•
The Location Z hotel market
has been stable growing 3.2%
with inflation at 3%.
•
Although the accommodation
supply is dominated by above
mid-market hotels, the budget
hotel sector has been growing
at 17.6% rate for the past five
years.
•
•
Luxury/upper upscale hotels
with more than 200 rooms
represent four percent of the
entire lodging supply only.
Despite Client X’ market
leading position in Location X,
there are several competitors
with similar propositions.
Several of them have recently
undergone refurbishment
programs.
•
The evidence supports that the
outlook for the domestic hotel
market is positive as GDP
continues to grow along with
PDI
–
•
Additionally a growing
number of people are
eating out which will
support hotels’ F&B
proposition.
The market for international
travellers is likely to be remain
stable without a fluctuation in
the exchange rate.
Source: Deloitte Research & Analysis
47
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Country Analysis: Summary – Key Decision-making Drivers
The summary of key decision-making drivers shows medium to high results for most countries
Summary of Key Decision-making Drivers
Indicative
Key metrics
Demand
Drivers
Location Z
Arrivals
Illustrative
opportunity
Historical
Performance
(KPIs and
profitability)
Investment in
Tourism
Business
Environment
Illustrative
Yield
Ability to
implement
Medium
Medium
High
Medium
Low
Low
High
High
Weighting
Location A
Philippines
Location Y
Thailand
Location B
Source: Deloitte Research & Analysis
48
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Country Analysis: Summary – Ranking
Based on the 3 most important factors of illustrative opportunity, illustrative yield and ease to
implement, Location A appears to be the first choice for mid-market growth
Illustrative
opportunity rating
Illustrative yield rating
Ease to implement
Total
(max. 30)
Ranking
Location A
10
7
8
25
1
Philippines
2
5
4
11
5
Location Y
1
4
10
15
4
Thailand
5
7
6
18
3
Location B
5
10
5
20
2
Country
Key Criteria
Description
Illustrative opportunity
rating
Based on the forecast increase in international and domestic demand to 2018, assuming constant occupancy and no increase in
penetration of hotels
Illustrative yield rating
Illustrative yield for each location, based on investment cost required and indicative profitability
Ease to implement
A subjective rating based on geographical proximity and Deloitte insight on local market conditions
Overall Ranking
Relative positioning of locations based on equal weighting of 3 key criteria
High
Low
10
1
Source: Deloitte Research & Analysis
49
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Agenda
1.
Approach
2.
Industry overview
3.
Sector analysis
•
Region
•
Country
•
City
4.
Strategic options
5.
Selected strategy
6.
Next steps
50
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Gateway Cities: Ranking by Degree of Opportunity for Client X
Shanghai is first when ranked by degree of opportunity, and followed by Beijing, Bangkok, Ho Chi
Minh City and Singapore in the remaining top 5 positions
Ranking of Luxury Gateway Cities
Indicative Opportunity
City
Rank
Shanghai
1
Beijing
2
Bangkok
3
Ho Chi Minh City
4
Singapore
5
Hong Kong
6
New York
7=
Tokyo
7=
London
9=
Paris
9=
Source: Deloitte Research & Analysis
51
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Gateway Cities: Why Luxury
Client X has an opportunity to enter the luxury hotel market abroad based on both external and
internal factors
Category
Section
Detail
• Overall profitability of luxury hotels is higher than other market sectors both in terms of absolute quantum vs benchmark sample and overall
margin
Financials
• Luxury focused hotel chains have achieved historic growth in operating margin
• As an indicator of both analyst and investor confidence in the sector, share prices of luxury hotels have outperformed the index for hotels
Market
• Luxury hotels tend to have higher yields than lower rated hotels
KPIs
• Performance of luxury hotels KPIs has shown growth above other segments and (by definition) higher RevPAR levels
• Historically, luxury segment has outperformed upscale segment throughout the cycle
Currently strong growth in luxury hotel supply in the AsiaPac market creates both opportunity and risk:
• An opportunity to get involved in current development or flag an independent or speculative development (e.g. Hong Kong)
Timing
Supply growth
Real Estate
Valuations
• If the luxury market is not entered now, the increase in luxury product in the AsiaPac market will make it increasingly hard to find
development opportunities or acquisition opportunities at a reasonable price. Additionally it will become increasingly hard to create a new
brand based on competition versus already established brands
• Growth in valuations per key of luxury hotels is based on increase in value of real estate and quality of location, brand and product
• Real estate of luxury hotels tends to be in prime locations and, if owned, tends to create a further opportunity for value creation. This is the
unique differentiator of luxury versus other segments as premier locations command prices beyond the economic multiples
Brand
• Client X is a luxury brand, focusing on luxury product would be consistent with
customer perception
Experience
• Current hotel experience is in the luxury segment, which is different to other
segments
Vision
• Growth in luxury hotels is consistent with the vision of the senior management in Client X
Scale
• Lower number of luxury hotels (compared to mid-market) required to achieve critical mass
Client X
Potential to leverage both brand and
experience into overseas growth, which is not
possible for mid-market segment
Source: Deloitte Research & Analysis
52
© 2008 Deloitte & Touche LLP. Private and confidential
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Dated 9 June 2008
Gateway Cities: Demand (1/2)
Most gateway cities analysed are forecast continued strong growth in domestic and international
tourism, which may drive future demand for hotels
Summary of Key Forward-looking Drivers
Indicative
Country Economic
Indicators
Country
Real GDP Per
GDP Per
Capita Growth
Capita 2006
2006-13
(USD)
(CAGR)
City Demand
Drivers
Tourist
Arrivals
2006
(Million)
Illustrative
Opportunity
Country Demand Drivers
Int’l Trips
2006
(Million)
Int’l Trips
Growth
2006-11
(CAGR)
Domestic
Trips
2006
(Million)
Illustrative
Domestic
Average Trip
Avg. Trip additional u. upscale /
Trips Growth
Spend
Spend Growth luxury hotels required
2006-11
2006
2006-11
by 2018
(CAGR)
(USD)
(CAGR)
(# hotels)
Bangkok
3,166
4.6%
10.4
14
4%
86
8%
847
5.6%
53
Beijing
2,012
8.9%
3.6
49
8%
1,196
8%
272
11.0%
123
723
6.6%
2.3
2
13%
17
16%
893
(0.5)%
15
Hong Kong
27,499
4.1%
8.1
16
2%
6
4%
454
4.2%
46
London
39,681
1.8%
15.6
30
2%
129
(5)%
1,055
2.6%
58
New York
44,118
1.3%
6.2
51
5%
3,079
2%
2,090
2.1%
62
Paris
36,706
1.6%
9.7
79
3%
165
2%
234
2.6%
44
Shanghai
2,012
8.9%
4.3
49
8%
1,196
8%
272
11.0%
115
Singapore
31,028
3.4%
9.5
8
5%
1
10%
725
5.0%
14
Tokyo
34,264
1.8%
1.5
7
5%
341
1%
1,155
4.6%
20
Ho Chi Minh City
Note:
Growth rates based on local currencies
Source: Deloitte Research & Analysis
53
© 2008 Deloitte & Touche LLP. Private and confidential
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Gateway Cities: Demand (2/2)
Historic RevPAR performance is encouraging for the gateway cities. Half the benchmark samples
having experienced double-digit growth in 2004-07, driven primarily by higher ADR
Summary of Key Historic Drivers
Indicative
Upper Upscale / Luxury
Benchmark Profitability
Upper Upscale / Luxury Benchmark Performance
Upper Upscale / Luxury
Market Valuation
Country
Occupancy
2007
(%)
Occupancy
Change
2004-07
(p.p. Δ1 p.a.)
ADR
2007
(USD)
ADR Growth
2004-07
(CAGR)
RevPAR
2007
(USD)
RevPAR
2004-07
(CAGR)
GOP Margin
2006
(%)
GOP Margin
Growth
2005-06
(p.p. Δ1)
Valuation
per Key
2006
(USD ‘000s)
Val. Growth
per Key
2002-06
(CAGR)
Bangkok
70.5%
(1.9)%
$168
5.5%
$118
2.8%
44.6%
(0.1)%
195
1.7%
Beijing
68.9%
(0.7)%2
$141
5.0%2
$77
3.9%2
53.7%
1.7%
229
7.0%
Ho Chi Minh City
75.8%
5.0%2
$116
38.8%2
$88
48.6%2
52.4%
3.4%
n/a
n/a
Hong Kong
83.0%
0.5%
$227
10.8%
$189
11.6%
40.2%
2.1%
624
4.5%
London
79.5%
1.7%
$477
1.7%
$379
11.2%
42.8%
4.2%
724
2.7%
New York
83.1%
0.7%
$397
13.7%
$330
14.7%
37.4%
(1.9)%
540
4.0%
Paris
77.9%
2.8%
$533
5.8%
$415
9.9%
33.1%
4.4%
664
1.6%
Shanghai
68.6%
(2.4)%
$196
7.8%
$135
4.2%
47.1%
(0.7)
315
7.5%
Singapore
81.4%
1.8%
$187
16.6%
$152
19.3%
38.9%
2.5%
384
3.9%
Tokyo
76.1%
(2.2)%2
$232
6.3%2
$177
3.3%2
28.3%
0.9%
831
4.2%
Note:
Growth rates based on local currencies. 1 Average percentage-point change per annum.
Source: Deloitte Research & Analysis
54
2
Based on figures from 2006-07
© 2008 Deloitte & Touche LLP. Private and confidential
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Gateway Cities: Current and Pipeline Supply
The largest pipelines – both in terms of total rooms and as share of current supply – are found in the
Chinese cities
Current (2007) and Pipeline (c. 2008-10) Upper Upscale / Luxury Supply by City
Thousand Rooms
70
60
6.2k
8.1k
50
8.7k
40
Predominantly
independents
30
1.6k
2.5k
0.2k
54.6k
7.8k
51.1k
0.5k
20
35.9k
29.5k
29.1k
0.3k
23.2k
10
26.7k
19.3k
12.7k
0.6k
4.5k
0
Pipeline:
Bangkok
Beijing
Ho Chi Minh City
Hong Kong
London
New York
Paris
Shanghai
Singapore
Tokyo
8.7%
15.9%
12.8%
33.6%
5.5%
11.3%
2.8%
24.1%
2.1%
0.8%
Current Supply
Pipeline
Source: Lodging Econometrics; Deloitte Research & Analysis
55
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Gateway Cities: Key Performance Indicators
New York, Singapore and Ho Chi Minh City have experienced above-average growth in RevPAR 200407
Benchmark RevPAR by Market
USD 2007 vs CAGR 2004-07
450
Paris
400
London
350
New York
300
250
Average: $206
200
Tokyo
Hong Kong
Singapore
150
Shanghai
Bangkok
100
Beijing
Ho Chi Minh City
50
0
0%
Average: 12%
5%
10%
15%
20%
25%
30%
35%
40%
Note:
Ho Chi Minh City growth rate for 2005-07; Beijing and Tokyo are 2006-07
Source: Hotel Benchmark; Deloitte Research & Analysis
56
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Gateway Cities: Profitability
Luxury hotels in Beijing, Ho Chi Minh City increased their profitability from 2005 to 2006 with little
addition to overall RevPAR. Bangkok and Shanghai did not experience profit growth
Room Revenue & Profitability by City (2005-06)
Comparative RevPAR Index 2005, 2006 vs. GOP Margin 2005, 2006
500
2006
450
2005
400
Paris
350
New York
300
London
250
Tokyo
Average 2006: 210
200
Average 2005: 182
Hong Kong
Low Cost
Shanghai
150
Beijing
100
Singapore
Bangkok
Ho Chi Minh City
50
0
25%
Average 2005: 35.8%
30%
35%
Average 2006: 39.0%
40%
45%
50%
55%
Note:
USD RevPAR 2005 and equivalent USD RevPAR 2006 assuming local currency growth
Source: Hotel Benchmark; Deloitte Research & Analysis
57
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Gateway Cities: Illustrative Supply Opportunity
The Chinese gateways appear to have the largest opportunity, driven by growth in demand
Illustrative Supply Opportunity (2009-18)
Thousand Upper Upscale / Luxury Rooms
50
45
40
35
30
25
43.2k
20
32.5k
15
10
19.7k
17.3k
5
19.2k
9.2k
6.5k
4.0k
6.5k
9.1k
0
Relative #
hotels:
Bangkok
Beijing
HCMC
Hong Kong
London
New York
Paris
Shanghai
Singapore
Tokyo
~53
~123
~15
~46
~58
~62
~44
~115
~14
~20
Note:
Estimates are based on a number of assumptions and should be seen as illustrative and not regarded or relied upon as a forecast by Deloitte of expected future market behaviour.
Actual outcome could be materially different to that shown
Source: World Travel & Tourism Council; Lodging Econometrics; Hotel Benchmark; Deloitte Research & Analysis
58
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Gateway Cities: Valuations
Hotels in Shanghai and Beijing are experiencing the greatest level of growth in property value of
properties across the gateway cities
Upper Upscale / Luxury Valuation per Key (2006)
USD Thousands 2006 vs Local Currency CAGR 2002-06
900
Tokyo
800
London
700
Paris
Hong Kong
600
1
New York 2002-06
New York
Average: $501k
500
400
Singapore
Shanghai
300
Beijing
200
Bangkok
100
Average: 4.1%
0
0%
1%
2%
3%
4%
5%
6%
7%
8%
Note:
USD Valuation 2005 and equivalent USD Valuation 2006 assuming local currency growth. Valuations based on Upper Up-Scale and Luxury only. Figures for Ho Chi Minh City
unavailable. 1 CAGR 2002-06 shows low valuation due to 9/11. New York value taken from 2000-06
Source: HVS International; Deloitte Research & Analysis
59
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Gateway Cities: Yields – Acquisition
Thailand and Chinese cities offer the highest yields at relatively low investment levels
Illustrative Acquisition Upper Upscale / Luxury Yield by City (2005-06)
Valuation Thousand USD vs. Benchmark Percentage Return per Annum
900
2006
800
2005
Tokyo
700
Paris
600
Hong Kong
500
New York
Relatively high return and low investment costs
400
300
Singapore
Locati
on X
200
100
0
5%
Shanghai
Bangkok
Beijing
Market valuations increasing faster
than increases in hotel IBFC
7%
9%
Market valuations increasing less
than increases in hotel IBFC
11%
13%
Note:
15%
Valuation figures not available for Ho Chi Minh City; IBFC excludes ownership costs (rates, insurance, rent, interest,
management fees, depreciation and taxes). Relative yield equals IBFC per key divided by valuation per key
Source: Hotel Benchmark; HVS International; Deloitte Research & Analysis
60
17%
19%
21%
Annual Income before Fixed Charges per available room,
expressed as a percentage of valuation per Room
© 2008 Deloitte & Touche LLP. Private and confidential
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Gateway Cities: Yields – New Build
The three Chinese cities appear to offer the highest yield relative to construction costs. New build
yields are higher than acquisition yields because of the lower costs
Illustrative New Build Upper Upscale / Luxury Yield by City (2005-06)
Construction Costs per Room Thousand USD vs. Relative Yield
600
2006
2005
500
Tokyo
400
Location X
Hong Kong
300
Singapore
200
Bangkok
Beijing
Shanghai
Ho Chi Minh
100
Construction costs increasing faster
than increases in hotel IBFC
0
5%
10%
15%
Construction costs increasing less
than increases in hotel IBFC
20%
25%
Note:
Construction costs exclude land costs; IBFC excludes ownership costs (rates, insurance, rent, interest,
management fees, depreciation and taxes). Relative yield equals IBFC per key divided by construction costs per key
Source: Hotel Benchmark; Davis Langdon; Deloitte Research & Analysis
61
30%
35%
40%
Annual Income before Fixed Charges per available room,
expressed as a percentage of construction costs per Room
© 2008 Deloitte & Touche LLP. Private and confidential
Executive Summary
Final Report
Dated 9 June 2008
Gateway Cities: Summary – Key Decision-making Drivers
The summary of key decision-making drivers shows the majority of Asia-Pacific cities with medium to
high results
Summary of Key Decision-making Drivers
Indicative
Key Drivers
Bangkok
Beijing
Ho Chi
Minh City
Hong
Kong
London
New York
Paris
Shanghai
Singapore
Tokyo
Demand drivers
Location Z Arrivals
Supply drivers
Historical KPI performance
Historical profitability
Illustrative opportunity
Illustrative yield
unknown
unknown
Ability to implement
Source: Deloitte Research & Analysis
62
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Executive Summary
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Dated 9 June 2008
Gateway Cities: Summary – Ranking
The Chinese cities of Shanghai and Beijing, followed by the other five gateway cities in Asia-Pacific
are all attractive options for luxury gateway market entry
City
Illustrative opportunity rating
Illustrative yield rating
Ease to implement
Total (max. 30)
Ranking
Bangkok
6
9
8
23
3
Beijing
10
10
5
25
2
Ho Chi Minh City
2
91
7
18
4
Hong Kong
5
5
5
15
6
London
6
51
2
13
9=
New York
6
6
2
14
7=
Paris
5
6
2
13
9=
Shanghai
10
8
9
27
1
Singapore
2
7
8
17
5
Tokyo
3
3
8
14
7=
Key Criteria
Description
Illustrative opportunity
rating
Based on the forecast increase in international demand to 2018, assuming constant occupancy and no increase in penetration of hotels
Illustrative yield rating
Illustrative yield for each location, based on investment cost required and indicative profitability
Ease to implement
A subjective rating based on geographical proximity and Deloitte insight on local market conditions
Overall Ranking
Relative positioning of locations based on equal weighting of 3 key criteria
High
Low
10
1
Note:
Rating 10 = high, 1 = low. 1. Proxy based on construction cost and local market knowledge
Source: Deloitte Research & Analysis
63
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Dated 9 June 2008
Agenda
1.
Approach
2.
Industry overview
3.
Sector analysis
4.
Strategic options
•
Overview
•
Organic
•
M&A
5.
Selected strategy
6.
Next steps
64
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Executive Summary
Final Report
Dated 9 June 2008
Strategic Options: Overview
At the highest level, Client X has to chose from 3 strategic options
Current Value Realisation
Status Quo
• Sell Client X
• Fix Client X operations
• Real estate manager with
new brand
• Defend against marketplace
Growth Strategy
Source: Deloitte Research & Analysis
65
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Final Report
Dated 9 June 2008
Strategic Options: Pros & Cons
Growth in luxury hotels in gateway cities carries high investment cost and significant risk factors.
The mid-market option is potential very attractive under the franchise-in option
Option 1: Mid-Market Countries
Option 2: Luxury Gateway Cities
Options 3: M&A
• Growth opportunities
• Existing brand
• Proven brands
• Existing development partners
• Economies of scale with current
product
• Speed
• Growth opportunities
• Current market discount
• Equity capability.
• Choice of segment
• No sector experience
• Current capital investment requirement
• Credit markets
• Potential to devalue Client X brand
• Current operational performance
• Post Merger Integration risk
• Investment requirement or need to
acquire skills
• Implementation risk
• Gain platform in a master franchise
Advantages
• Acquire expertise
• Skills requirement.
Disadvantages
Source: Deloitte Research & Analysis
66
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Executive Summary
Final Report
Dated 9 June 2008
Strategic Options: Organic Growth – Available Operating Models
Client X will need to follow an owned/leased operating model in both the mid-market and luxury sector
in the short to medium term, until it is able to prove its ability to operate hotels profitably to owners
Mid-market in focus countries
Luxury in gateway cities
Owned/Leased
under Client X
Brand or Client X
Brand Family


Entering the mid-market with a Client X brand would
be high risk due to the lack of an existing brand, and
lack of experience and skills in the mid-market.
If Client X is willing to commit significant investment
capital into owned/leased hotels, it will be able to
enter gateway cities in the luxury sector
Managed
under Client X
Brand or Client X
Brand Family


For the above reasons it would be highly risky to
attempt to manage hotels under a Client X midmarket brand. Furthermore, returns are likely to be
higher under a franchised in brand.
Client X will only be able to secure management
contracts in the luxury sector in gateway cities (other
than potentially in Location X) once it has a proven
track record. This will be in the medium to long term.
Owned/Leased
under franchised in
brand


Depending availability within each country, Client X
has the potential to franchise in a global brand and
capitalise on their brand, operational experience and
procedures, sales and marketing platform, etc.
Not applicable as luxury operators do not franchise
out their brands.
Managed
under franchised in
brand


Not applicable in short to medium term until Client X
can prove to owners that it can operate effectively.
Not applicable as luxury operators do not franchise
out their brands.
= Operating models available to Client X in the short to medium term
Source: Deloitte Research & Analysis
67
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Dated 9 June 2008
Strategic Options: Key Components of a Platform for Profitable Growth
Client X will need to ensure it has the necessary platform to ensure profitable growth
• Global or regional sales and marketing team driving reservations
• Participation in global marketing strategies and programmes (e.g. promotions, yield management)
Sales and marketing
• Access to a globally recognised guest loyalty program (driving 30% - 50% of paid room nights)
• Strong cost effective distribution systems including website and GDS
• Standard operating procedures
• Improving hotel operating margins through procurement savings
Operations
• Providing shared services
• Providing access to training
• Brand standards
• Architecture and construction services
Development
• Providing local development expertise
• Financial modelling
Real estate
• Expertise in maximising real estate values
Source: Deloitte Research & Analysis
68
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Final Report
Dated 9 June 2008
Strategic Options: Focus Country International Arrivals
Based on number of international arrivals (line width) and historical growth (%), Location A and
Location B appear to be the most attractive country options. However, this will depend on risk/reward
aptitude
Suggested countries of focus
Location B
Location A
12%
18%
20%
16%
51%
Rep. of
Location Z
4%
3%
Philippines
30%
15%
16%
22%
Thailand
Approx. # Int’l Arrivals
13%
3.0m
1.0m
11%
0.5m
3%
Note:
Reflects major population flows between focus countries only
Source: Euromonitor; Deloitte Research & Analysis
69
Historical growth &
International Arrivals
2002-06
© 2008 Deloitte & Touche LLP. Private and confidential
Executive Summary
Final Report
Dated 9 June 2008
Strategic Options: Approach – Luxury Gateway Cities
Viable approach but requires development of operational platform and recruitment of a development
team. Consequently rollout rate will be slow at c. 8-10 hotels in 10 years
• Begin development activity (sourcing opportunities) in top target cities simultaneously with a view to opening 1
property in year 3, second in year 4, third in year 5.
• Top target cities – Shanghai, Beijing, Bangkok, Ho Chi Minh City
Approach
• Based on current analysis Phase Two opportunities in Years 5-10 should focus on Hong Kong, Singapore and Tokyo
• Market analysis should be repeated within first five years to refine development activity
• Need experienced Development Team and this will take time and money to recruit with inherent risk
• Due to lack of brand awareness outside of Location Z the management contract model is not appropriate and so the
ownership model is the most viable option
• Due to lack of brand awareness outside of Location Z it will be more difficult to acquire assets in these competitive
cities
Comment/Caveat
• The expenditure/revenue profile will show:
– Significant capital outlay in years 1 – 2 with no revenue
– Significant capital outlay in years 3 – 5 with limited revenue
– Significant capital outlay in years 5 – 8 with moderate revenue
• Lack of experienced management talent pool to manage new properties
• Lack of stable and efficient operating platform to deliver profitable growth
Source: Deloitte Research & Analysis
70
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Executive Summary
Final Report
Dated 9 June 2008
Strategic Options: Approach – Mid-market Countries
Franchising in Location A offers the most attractive opportunity for growth both in terms of speed and
building a reliable operational platform
• Initial focus on Location A in years 1 – 5 with a target of 5 hotels
– Three potential approaches:
- Major brand franchise and building assets
- Acquire small portfolio of hotels ( 5 – 10 properties)
Approach
- Acquire and convert single 4* properties
• Years 5 – 7 focus on Location B and Thailand through single asset development
– Need to begin Location B development activity in year 3 due to long lead time
– Begin Thailand development activity in year 4
• Results in portfolio of 15 – 20 hotels within 10 years
• Lack of operational platform to support profitable growth which is particularly important for the mid-market
• Franchise option most attractive as will gain the most important elements of platform such as brand standards,
standard operating procedures, training, central reservations and global marketing
– Remaining elements are the easiest to implement locally such as centralised IT systems
• Lack of experienced management pool to support growth
Comment/Caveat
• Lack of experienced development team
• Opportunity to build on existing relationship with Suning
• Opportunity for rapid growth through acquisition of small portfolio and moderate growth through conversion of existing
properties in Location A
• Precise location in Location A very important as not all secondary cities offer the best opportunities
• Review geographical options in year 4 before beginning phase 2
Source: Deloitte Research & Analysis
71
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Executive Summary
Final Report
Dated 9 June 2008
Strategic Options: Approach – M&A
Offers best option for growth with sector choice dependent on Client X’s growth ambitions
• Mid-market segment offers potentially larger more stable growth
Sector Dynamics
• Luxury segment offers greater return in a growing market but greater risk in a declining market and less opportunity
for growth in scale
• Cultural fit to Client X
Implementation
Considerations
• Geographic location of headquarters
• Capabilities acquired – talent, platform, property assets
• Synergies with current Client X brand and operations
• M&A provides quickest, least risky option for growth
Comment/Caveat
• Returns will clearly be dependent on exact nature of acquisition target
• Choose segment based on vision
Approach
• Select targets based on fit (return, culture, footprint)
• Implement via tactical delivery of JV / majority stake / minority stake, as possible
Source: Deloitte Research & Analysis
72
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Executive Summary
Final Report
Dated 9 June 2008
Strategic Options: Summary
In summary, Client X should build on the strengths of Client X, obtain an experience CX team to drive
forward and focus on expansion close to home
Category
Detail
Valuable asset in Client X that needs realising to full potential
Build on strengths
• Operational improvement and capital investment
• Increase returns and become showcase for growth strategy
Obtain experienced CX team
Start close to home
Trust the data
• To realise potential in current portfolio
• To drive forward chosen growth strategy
• Easier to manage, can leverage existing operations, brand awareness
• Most major multinational and regional players adopted this approach
• The luxury segment in AsiaPac is out performing other regions and there is still plenty of future growth
• Shanghai, Beijing, Bangkok, HCMC, Singapore, Hong Kong offer best market opportunities
Source: Deloitte Research & Analysis
73
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Executive Summary
Final Report
Dated 9 June 2008
Agenda
1.
Approach
2.
Industry overview
3.
Sector analysis
4.
Strategic options
•
Overview
•
Organic
•
M&A
5.
Selected strategy
6.
Next steps
74
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Executive Summary
Final Report
Dated 9 June 2008
Organic: Gateway Cities Ranking Recap
The Chinese cities of Shanghai and Beijing, supported by SE Asia’s Bangkok and HCMC appear to be
the best opportunities for luxury gateway market entry
City
Illustrative opportunity rating
Illustrative yield rating
Ease to implement
Total (max. 30)
Ranking
Bangkok
6
9
8
23
3
Beijing
10
10
5
25
2
Ho Chi Minh City
2
91
7
18
4
Hong Kong
5
5
5
15
6
London
6
51
2
13
9=
New York
6
6
2
14
7=
Paris
5
6
2
13
9=
Shanghai
10
8
9
27
1
Singapore
2
7
8
17
5
Tokyo
3
3
8
14
7=
Key Criteria
Description
Illustrative opportunity
rating
Based on the forecast increase in international demand to 2018, assuming constant occupancy and no increase in penetration of hotels
Illustrative yield rating
Illustrative yield for each location, based on investment cost required and indicative profitability
Ease to implement
A subjective rating based on geographical proximity and Deloitte insight on local market conditions
Overall Ranking
Relative positioning of locations based on equal weighting of 3 key criteria
High
Low
10
1
Note:
Rating 10 = high, 1 = low. 1. Proxy based on construction cost and local market knowledge
Source: Deloitte Research & Analysis
75
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Executive Summary
Final Report
Dated 9 June 2008
Organic: Gateway Cities Ranking Opportunity Recap
The top 6 cities in the ranking represent attractive options for Client X which should be pursued to
provide good regional coverage
Ranking of Luxury Gateway Cities
Indicative Opportunity
City
Rank
Shanghai
1
Beijing
2
Bangkok
3
Ho Chi Minh City
4
Singapore
5
Hong Kong
6
New York
7=
Tokyo
7=
London
9=
Paris
9=
All top 6 cities represent attractive and interesting
options for Client X to operate hotels in based on
illustrative opportunity, yield and ability to implement,
The long term goal must remain to have properties in
each of the top 6 cities to provide strong regional
coverage across key gateway cities.
Ranking suggests an ideal order based on perfect
market situation. However given pragmatic realities, it
may not be possible to approach the cities in this order
and Client X will need to opportunistic as to which
options are achievable in what order
Source: Deloitte Research & Analysis
76
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Executive Summary
Final Report
Dated 9 June 2008
Agenda
1.
Approach
2.
Industry overview
3.
Sector analysis
4.
Strategic options
•
Overview
•
Organic
•
M&A
–
Overview
–
Majority stake corporate targets
–
Strategic partnership targets
–
Iconic property targets
5.
Selected strategy
6.
Next steps
77
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Dated 9 June 2008
M&A: Overview of M&A Options
Deloitte have analysed 4 majority stake corporate targets, 8 minority acquisition targets and 4 iconic
property targets
Majority stake corporate targets
Strategic partnership targets
Iconic property acquisition
Existing properties:
Aman deal with DLF
now believed to be
complete. Unlikely to
be able to take majority
stake
Development opportunity:
Source: Deloitte Research & Analysis
78
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Dated 9 June 2008
M&A: Illustrative Time-line
It is vital that any approach to potential targets is fully thought out and a strategy formulated before
the target is contacted
Months
Task
0
6
12
18
Evaluation of appropriateness of M&A strategy
Client X is still at the very
early stages of an M&A
process. No final decision
on targets can be made at
this stage,
- Determine Client X's overall vision and strategy
- Determine capacity to invest
- Determine aim of M&A strategy (operations, brand, growth)
- Evaluate the type of potential M&A targets
Plan M&A
- Appoint management team
- Appoint advisors
- Complete targeting and acquisitions search and analysis
- Formulate an approach strategy
- Agree a preliminary view on valuation and financial structuring
Approach only takes
place after careful
planning
Execution
- Approach the target using top level contacts
- Initial discussions and determining targets requirements
- Obtaining and analysing targets management information
- Financial due diligence and commercial due diligence
- Negotiations & completion
Post merger integration
- Integrate management teams
- Execute growth strategy
Source: Deloitte Research & Analysis
79
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Executive Summary
Final Report
Dated 9 June 2008
M&A: Key Success Factors of M&A Transactions
M&A transactions are difficult to execute. Key success factors differ from deal to deal. However, the
following represent some of the key success factors for most deals.
• The timing of any acquisition significantly effects acquisition prices.
Timing
• Completing M&A deals in the current market is extremely challenging unless the acquirer is
willing to pay a significant premium above quoted market values.
Value-added
• In order to justify any M&A transaction you need to be able to show how the transaction will
generate value for the combined new entity / group. For example, providing access to new
markets or providing investment capital for expansion,
Capacity to do deal
• The acquirer will need to be able to demonstrate the capacity to do the deal. This includes
securing both the necessary debt and equity requirements.
Understanding the vendor
• The acquirer needs to understand the needs of the vendor, i.e. “What’s in it for me” in order
to be able to present a proposition they will be interested in discussing. For example, is the
vendor looking to exit the business completely, are they looking to expand, etc.
Chemistry
• The acquirer and the vendor will need to be able to work together in order to successfully
complete a transaction. This is even more important when the vendor has an ongoing interest
in the company (e.g. Joint Venture)
Source: Deloitte Research & Analysis
80
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Executive Summary
Final Report
Dated 9 June 2008
Agenda
1.
Approach
2.
Industry overview
3.
Sector analysis
4.
Strategic options
•
Overview
•
Organic
•
M&A
–
Overview
–
Majority stake corporate targets
–
Strategic partnership targets
–
Iconic property targets
5.
Selected strategy
6.
Next steps
81
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Dated 9 June 2008
Majority Stake: Potential Deal Structures
In order to perform a majority acquisition Client X will require significant investment capital and be
willing to pay in excess of current market prices
Majority acquisition on own
Description
Requirements
Majority acquisition with real estate partner
• Client X acquires more than 50% of the target company and therefore
acquires brands, operations and real estate
• Client X acquires the target together with a partner. Subsequent to the
transaction the real estate is spun off into a propco.
• Examples: Competitor A, Competitor D, Competitor E and Competitor C
• Examples – Prince Alwaleed & Four Seasons
• Significant investment capital
• A partner interested in acquiring the real-estate and wanting to partner with
Client X. In the short to medium term the partner would need to be Samsung
related (until Client X proves themselves).
• Required to pay 20% - 30% more than current market prices
• Complete control of transaction
• Significantly reduces acquisition costs for Client X as it acquires operations
only
• Acquisition of proven brands and operations
Pros
• Provides base for future growth if partner continues to invest in real-estate of
new developments
• Fastest method of expansion
• Partner can have real-estate or development expertise
Cons
• If target is listed Client X will be required to make an offer for 100% of the
equity of the target as a result of most stock exchange regulations
• Will need to pay a significant premium over current market prices in order to
secure majority control.
Source: Deloitte Research & Analysis
82
• No real estate appreciation for Client X
• Will need to pay a significant premium over current market prices in order to
secure majority control.
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Dated 9 June 2008
Majority Stake: Screening ‘Long List’ of Potential Targets
4 Luxury/Upper Upscale companies were identified as potential majority stake acquisitions
Luxury / Upper Upscale
‘Long List’ of
targets
Upscale / Mid Market
36
38
Minimum Investment Criteria
Targets
meeting
minimum
investment
criteria
8
9
Value Creation Criteria
‘Short list’ of
targets
4
5
Client X has indicated
they do not wish to
pursue a mid-market
M&A strategy
Note: (1) enterprise values is c.$1bn or less; (2) Based on target’s brand equity, operational experience and geographical presence in focus countries/cities
Source: Deloitte Research & Analysis
83
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Executive Summary
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Dated 9 June 2008
Majority Stake: Alternative Strategies for Engaging Identified Targets
Client X is restricted to a minority or JV investment unless it is able to increase the funds available for
investment.
1
• Possibility of a majority acquisition is
unknown until approach is made.
Majority
investment
• Unlikely to be a possibility as recently
acquired by DLF who have significant
expansion plans.
• Unlikely to be a possibility unless Client X
has access to over $1bn for investment.
The Hunt family and Maritz Wolff each
own 50% and therefore both would need
to be bought out.
• This is a possibility, however, Client X
would still need to have access to
c.$0.5bn+.
• Client X would need to prove value-add.
• This is unlikely to be a possibility as DLF
have significant funds available for
investment (don’t need investment
partner) and already have a presence in
Asia Pacific.
• Banyan is a listed investment therefore
minority investment can be acquired
through purchasing on the open market
or through off-market purchases from
significant investors.
• This is unlikely to be a possibility as DLF
have significant funds available for
investment (don’t need investment
partner) and already have a presence in
Asia Pacific.
• Possibility of a minority investment is
unknown until an approach is made.
• Price premium can be limited by careful
planning of open market acquisitions.
• Client X would need to demonstrate the
value it could add to the deal.
• Will require the payment of a significant
premium.
• Will need to observe stock exchange
rules (offer to acquire 100% of stock)
Joint
Venture
Minority
investment
• Possibility of JV acquisition is unknown
but likely to be challenging given that
Banyan is a listed company with a large
number of investors.
• Client X would need to demonstrate the
value it would add to an M&A deal (e.g.
expansion in Asia).
• Client X would need to demonstrate the
value it would add to an M&A deal (e.g.
expansion in Asia).
• Stock exchange rules require disclosure
of interests in excess of thresholds (e.g.
5%)
Morgan’s has not been included in the above analysis and Client X indicated they do not consider it to be an attractive target. 1. DLF believed to have completed deal to
acquire controlling interest in Aman Resorts group
Source: Deloitte Research & Analysis
84
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Note:
Executive Summary
Final Report
Dated 9 June 2008
Majority Stake: Acquisition Target (1/4)
Aman resorts
HQ: Haryana, India
Portfolio Overview
Ownership and Share Price
• 100% Resorts
• Significant shareholders: DLF limited, Adrian Zecha
Total # of Hotels
• Operating Model:
# of New Hotels
18
17 4
20
15
Owned
10
5
• Hotels: 18 existing
6
1
8
10
9
11
14
13
12
• Key executives: Adrian Zecha
3
• Share Price: N/A
2
3
1
0
0
• Rooms: 806
• Enterprise value band: c.$400m (last transaction value)
1988 1991 1994 1997 2000 2003 2006
• Number of Employees: N/A
Number of New Hotels
Total Number of Hotels
Geographical Distribution
Brand Distribution
% of # of hotels
% of # of rooms
Key Performance Indicators
07
ADR
10 0 %
10 0 %
80%
80%
40%
Thailand
Philippines
Cambodia
Bora Bora
Bhutan
India
Return on Capital Employed
Return on Equity
60%
Aman
EBITDA Margin
40%
Profitability – Revenue, EBITDA (US$ million)
Sri Lanka
20%
09E
20%
Indonesia
0%
$778
RevPAR
Other1
60%
06
Occupancy Rate
08E
07
06
05
04
03
02
Revenue
0%
EBITDA
Note:
1. France (1), Morocco(1), U.S.(1), Turkey (1)
Source: Deloitte Research & Analysis
85
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Dated 9 June 2008
Majority Stake: Acquisition Target (2/4)
HQ: Singapore, Singapore
Portfolio Overview
Ownership and Share Price
• Significant shareholders: Ho Kwon Ping (36.5%), Chiang See
Ngoh Claire (36.5%)
• Enterprise value band: c.1$bn (current) - c.1.6$bn (June 2007)
• Key executives: Ho Kwon Ping, Ariel P Vera, Chiang See Ngoh
Claire
• Share3.0
Price:
• 82% Resorts
Total # of Hotels
25
1997 Asian
Financial
Crisis
20
Managed
Owned
15
10
• Hotels: 23 existing & 49 pipeline
5
0
• Rooms: 2,330
• Number of Employees: 7,068
# of New Hotels
4
13
11
9
15
6
Number of New Hotels
% of # of rooms
APAC other1
60%
40%
20%
0%
Other2
Angsana
80%
Maldives
Thailand
60%
Banyan
Tree
1.5
1.0
Sep 06
Jan 07
May 07
Sep 07
Jan 08
07
06
Occupancy Rate
67%
63%
ADR
$ 235
$ 215
RevPAR
$ 157
$ 135
Return on Capital Employed
10%
15%
Return on Equity
18.8%
9.9%
EBITDA Margin
29.0%
33.2%
Profitability – Revenue, EBITDA (US$ million)
40%
20%
2.0
Key Performance Indicators
10 0 %
Location A
2.5
0.5
Total Number of Hotels
% of # of hotels
80%
2
0
1987 1991 1995 1999 2003 2007
Brand Distribution
Indonesia
3
1
1
Geographical Distribution
10 0 %
23 5
20
4
Share price (S$)
• Operating Model:
09E
08E
07
06
05
04
Revenue
396.8
309.5
280.2
211.1
112.6
159.4
EBITDA
124.0
93.0
81.3
70.1
20.9
Laguna
0%
03
02
Note:
1. India(1), Sri Lanka(1), Laos(1); 2. Seychelles(1), Morocco(1), Australia(1), Bahrain(1); 3. Data on shaded area not available as Banyan Tree went public in only June 2006
Source: Deloitte Research & Analysis, CIMB Report, Yahoo Finance
86
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Executive Summary
Final Report
Dated 9 June 2008
Majority Stake: Acquisition Target (3/4)
HQ: New York, NY
Portfolio Overview
Ownership and Share Price
• Significant shareholders: Morgan Stanley & Co (17.66%), Fidelity
Management & Research (14.78%), Blackrock Advisors (6.38%)
• Enterprise value band: $1.2bn (current) - $1.4bn (June 2007)
• Key executives: David Hamamoto (Chairman), Fred J.Kleisner
(CEO), Richard Szymanski (CFO)
• Share Price
• 36% Resorts
Total # of Hotels
# of New Hotels
15
JV
9
10
Owned
5
• Hotels: 12 existing & 6 pipeline
• Rooms: 6,800
1
2
4
3
5
7
0
0
Number of New Hotels
Total Number of Hotels
Brand Distribution
% of # of hotels
% of # of rooms
60%
40%
10 0 %
Scottsdale
San Fran.
L.A.
Las Vegas
London
Miami
20%
80%
60%
40%
20%
New York
0%
2
1
Geographical Distribution
80%
3
1984 1988 1992 1996 2000 2004
• Number of Employees: 1,9501
10 0 %
12
10
Share price (US$)
• Operating Model:
30
25
Went public
in February
2006
20
15
10
Jan 04
Jan 05
Jan 06
Jan 07
Jan 08
Key Performance Indicators
Hard Rock
Shore Club
Sanderson
St.Martins
Clift
Hudson
Delano
Royalton
Morgans
07
06
Occupancy Rate
80.1%
77%
ADR
$ 396
$ 319
RevPAR
$ 317
$ 246
Return on Capital Employed
3%
7%
Return on Equity
-9%
-10%
35.1%
30.5%
EBITDA Margin
Profitability – Revenue, EBITDA (US$ million)
Mondrian
0%
09E
08E
07
06
05
Revenue
389.0
345.6
323.0
278.6
260.4
EBITDA
149.3
111.7
113.2
85.1
79.5
04
03
02
Note:
1. As of December 31, 2006 – does not include employees of joint venture restaurants
Source: Deloitte Research & Analysis, Yahoo Finance, Oppenheimer
87
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Executive Summary
Final Report
Dated 9 June 2008
Majority Stake: Acquisition Target (4/4)
HQ: Dallas, Texas, United States
Portfolio Overview
Ownership and Share Price
• 55% Resorts
• Operating Model:
Total # of Hotels
20
15
Owned
Managed
10
5
4
5
6
7
8
9
14
12
10
Number of New Hotels
% of # of rooms
Middle East
60%
Caribbean
Latin
America
40%
20%
0%
10 0 %
80%
60%
40%
North
America
20%
• Share Price: N/A
Total Number of Hotels
% of # of hotels
80%
• Key executives: John Scott (President & CEO), Susan Aldrige
(SVP & General Counsel), Bob Boulogne(COO), Jim Brackensick
(SVP – Purchasing), George Fong (SVP – Architecture & Design),
Ernest Glidden (SVP – Finanace), Alex Alt (Diretor- Development
& Strategy), Sheri Line (HR Director)
3
1996 2002
Brand Distribution
Tokyo
• Enterprise value band: c.1$bn+
4
0
1978 1984 1990
Geographical Distribution
10 0 %
5
1
0
• Number of Employees: c.5,000
16
2
• Hotels: 17 existing & 6 pipeline
• Rooms: 1,939
• Significant shareholders: Hunt family (50%) and Maritz, Wolff &
Company (50%)
# of New Hotels
Peachtree
Caneel Bay
Al Khozoma
Carlyle
Al Faisaliah
Key Performance Indicators
07
06
Occupancy Rate
ADR
King Pacific
San Ysidro
Cordevalle
Jumby Bay
Anasazi
Las Ventanas
Seiyo Ginza
RevPAR
Return on Capital Employed
Return on Equity
EBITDA Margin
Profitability – Revenue, EBITDA (US$ million)
09E
Rosewood
Revenue
0%
08E
07
06
05
04
03
02
350
EBITDA
Note:
1. Five hotels including Rosewood Corniche, Rosewood Mansion on Turtle Creek, Rosewood Crescent Hotel, Rosewood Little Dix Bay, Rosewood Mayakoba
Source: Deloitte Research & Analysis
88
© 2008 Deloitte & Touche LLP. Private and confidential
Executive Summary
Final Report
Dated 9 June 2008
Agenda
1.
Approach
2.
Industry overview
3.
Sector analysis
4.
Strategic options
•
Overview
•
Organic
•
M&A
–
Overview
–
Majority stake corporate targets
–
Strategic partnership targets
–
Iconic property targets
5.
Selected strategy
6.
Next steps
89
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Executive Summary
Final Report
Dated 9 June 2008
Strategic Partnership: Investment Plan
A strategic partnership investment plan would allow Client X to acquire an immediate stake in the
target with a view of acquiring a majority stake at a later stage
Deal description
Client X enters into a strategic partnership with a
target whereby value is created for both partners:
• Client X acquires a minority share (10% - 20%) in
the target company and negotiates a position on the
board.
• Client X transfers management of its existing hotels
to the target company in exchange for the target
investing repositioning capex.
• Client X co-invests in real estate of new hotel
developments that bear the brand of the target.
Client X helps source the opportunities using
Samsungs muscle/contacts/network/own customer
base of it's employees
Client X will be well positioned to acquire a majority
stake if the opportunity presents itself in future years.
Pros
Cons
• Opportunity to acquire an immediate stake in target (with minimum
premium) and positions Client X well to acquire a majority stake in the
future.
• Only have minority interest in target therefore have limited control over its
direction and strategy.
• Value generated by improved performance at existing Client X hotels as a
result of access to targets platform and operational excellence.
• Risk of losing control of Client X Brand.
• Opportunity remains to expand Client X brand (e.g. co-brand with target
where it makes sense.
• Potential negative impact on shareholders view of the value of the
company (i.e. no longer runs its own hotels).
•Client X ideally positioned invest in prime hotel real estate projects.
90
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Executive Summary
Final Report
Dated 9 June 2008
Strategic Partnership: Screening ‘Long List’ of Potential Targets
Eight Luxury/Upper Upscale companies were identified as potential minority stake acquisitions
‘Long List’ of
targets
Within Client X investment capacity(1)
Targets within
Client X
investment
capacity
20
hotels
Brand ‘fit’ with Client X(2)
‘Short list’ of
targets
9
hotels
Note: (1) required investment to obtain a 10% interest must be less than $300m; (2) Client X fits within target brands and M&A transaction likely to generate value
Source: Deloitte Research & Analysis
91
© 2008 Deloitte & Touche LLP. Private and confidential
Executive Summary
Final Report
Dated 9 June 2008
Strategic Partnership: Potential Targets –
HQ: Singapore
Portfolio Overview
Ownership and Share Price
• Significant shareholders: Ho Kwon Ping (36.5%), Chiang See
Ngoh Claire (36.5%)
• Enterprise value band: c.1$bn (current) - c.1.6$bn (June 2007)
• Key executives: Ho Kwon Ping, Ariel P Vera, Chiang See Ngoh
Claire
• Share Price:
• 82% Resorts
Total # of Hotels
25
1997 Asian
Financial
Crisis
20
Managed
Owned
15
10
• Hotels: 23 existing & 49 pipeline
5
0
• Rooms: 2,330
• Number of Employees: 7,068
# of New Hotels
4
13
11
9
15
6
Number of New Hotels
% of # of rooms
APAC other1
60%
40%
20%
0%
Other2
Angsana
80%
Maldives
Thailand
60%
Banyan
Tree
40%
20%
2.0
1.5
1.0
Sep 06
Jan 07
May 07
Sep 07
Jan 08
Key Performance Indicators
10 0 %
Location A
3.0
2.5
0.5
Total Number of Hotels
% of # of hotels
80%
2
0
1987 1991 1995 1999 2003 2007
Brand Distribution
Indonesia
3
1
1
Geographical Distribution
10 0 %
23 5
20
4
Share price (S$)
• Operating Model:
07
06
Occupancy Rate
67%
63%
ADR
$235
$215
RevPAR
$157
$135
Return on Capital Employed
10%
15%
Return on Equity
18.8%
9.9%
EBITDA Margin
29.0%
33.2%
Profitability – Revenue, EBITDA (US$ million)
09E
08E
07
06
05
04
Revenue
396.8
309.5
280.2
211.1
112.6
159.4
EBITDA
124.0
93.0
81.3
70.1
20.9
Laguna
0%
03
02
Note: 1. India(1), Sri Lanka(1), Laos(1); 2. Seychelles(1), Morocco(1), Australia(1), Bahrain(1); 3. Data on shaded area not available as Banyan Tree went public in only June 2006
Source: Deloitte Research & Analysis, CIMB Report, Yahoo Finance
92
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Executive Summary
Final Report
Dated 9 June 2008
Strategic Partnership: Potential Targets –
HQ: Hong Kong, Location A
Ownership and Share Price1
• Significant shareholders:
• Enterprise value band: $2.5bn (current)
• Key executives: Ka Shiu Lo (Chairman of the Board, managing
director) Yiu Wah So (Hotel executive vice president)
• Share Price
Portfolio Overview
• 10% Resorts
Total # of Hotels
# of New Hotels
12
9
10
8
Owned
6
4
• Hotels: 10 existing & 4 pipeline
2
2
1
3
4
• Number of Employees: 4,044
2
1
0
1990
1994
1998
Number of New Hotels
2002
2006
Brand Distribution
% of # of hotels
% of # of rooms
80%
10 0 %
80%
20
10
4
Jan 04
Jan 05
Jan 06
Eaton
Delta
07
06
79%
ADR
$189.8
$169.8
RevPAR
$149.4
$133.8
Return on Capital Employed1
14.5%
1.92%
Equity1
15.5%
2.0%
39.7%
37.6%
Return on
60%
Americas
40%
Profitability – Revenue, EBITDA (US$ million)1
Langham
20%
0%
Hong Kong
Jan 08
80%
Occupancy Rate
EBITDA Margin1
40%
Jan 07
Key Performance Indicators
Pacific
60%
40
30
Total Number of Hotels
Geographical Distribution
London
Thailand
4
3
5
0
• Rooms: 5,580
10 0 %
10 5
Share price (HK$)
• Operating Model:
07
06
052
042
03
02
Revenue
536.1
485.6
452.8
363.5
312.2
329.5
EBITDA
212.6
182.7
1,750
499.0
70.1
94.8
09E
20%
0%
08E
Note: 1. information of Great Eagles Holdings Limited, which owns Langham Hotels International Limited;2. The EBITDA is high due to the large increase in fair value changes on
investment properties
Source: Deloitte Research & Analysis
93
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Executive Summary
Final Report
Dated 9 June 2008
Strategic Partnership: Potential Targets –
HQ: Hong Kong, Location A
Portfolio Overview
Ownership and Share Price
• Significant shareholders: Jardine Strategic and its subsidiaries
(73.58%)
• Enterprise value band: $2.3bn (current)
• Key executives: Edouard Ettedgui (Group CEO, Director), John
Witt (Finance Director)
• Share Price
• 0% Resorts
Leased
Total # of Hotels
25
20
JV
Owned
15
10
Managed
• Hotels: 21 existing & 18pipeline
0
• Rooms: 10,000
• Number of Employees: 10,000
4
23
5
5
# of New Hotels
21 5
19
16 4
15
14
13
3
10
9
8
2
6
1
1
1963
0
1973
1983
Number of New Hotels
1993
2003
Brand Distribution
% of # of hotels
% of # of rooms
Europe
80%
Americas
60%
60%
40%
Mandarin
Oriental
0%
0%
03
04
05
06
07
08
07
06
Occupancy Rate
72.1%
72.9%
ADR
$ 381
$ 331
RevPAR
$ 286
$245
Return on Capital Employed
10.4%
13.8%
Return on Equity
10.1%
8.0%
19%
14%
Profitability – Revenue, EBITDA (US$ million)
Asia1
20%
0
EBITDA Margin
40%
20%
1
Key Performance Indicators2
10 0 %
80%
Went public
in February
2006
2
Total Number of Hotels
Geographical Distribution
10 0 %
3
Share price (US$)
• Operating Model:
09E
08E
07
06
05
04
03
02
Revenue
1,007
850.3
815.4
667.3
541.2
547.5
EBITDA
190.2
116.4
124.0
99.0
68.8
78.0
Note: 1. Bangkok, Chiang Mai, Hong Kong (3), Jakarta, Kuala Lumpur, Macau, Manila, Singapore, Tokyo; 2. Data available only for those with significant ownership
Source: Deloitte Research & Analysis, Reuters
94
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Executive Summary
Final Report
Dated 9 June 2008
Strategic Partnership: Potential Targets –
HQ: Bangkok, Thailand
Total # of
• Operating Model:
JV
Owned
• Hotels: 18 existing & 12 pipeline
• Rooms: 2,654
• Number of Employees: c.18,000
Hotels1
# of New Hotels
17 6
18
16
14
12
10
8
6
4
2
0
Went
public in
1988
5
4
3
12 5
11
10
4
9
8
7
3
2
1
1
0
1976
1985
Number of New Hotels
1994
2003
Brand Distribution
% of # of hotels
% of # of rooms
Location B
Sri Lanka
80%
Maldives
40%
0%
1212
Jan 08
Feb 08
Mar 08
Apr 08
May 08
07
06
66%
ADR
US$ 307
US$ 215
RevPAR
US$ 196
US$ 142
Anantara
Return on Capital
Employed3
9.2%
7.1%
Four Seasons
Return on Equity3
18%
18%
21%
21%
Club Dolphin
Naladhu
Bodu Hura
Serendib
Sigiriya
Harbour View
EBITDA
40%
20%
1414
Occupancy Rate
Margin3
Profitability – Revenue4, EBITDA (US$ million)
Thailand
20%
1616
Key Performance Indicators
60%
60%
1818
64%
10 0 %
80%
2020
Total Number of Hotels
Geographical Distribution
10 0 %
Ownership and Share Price
• Significant shareholders: Minor Corporation Plc. (17%), Minor
Holdings (Thai)Ltd. (17.28%), William E. Heinecke (7.10%)
• Enterprise value band: $1.9bn (current)
• Key executives: Michael Sagild
• Share Price2:
Share price (THB$)
• 61% Resorts
Competitor
C
0%
09E
08E
07
06
Revenue
216
201
193
123
EBITDA
47
42
40
26
05
04
03
02
Note: 1. Data unavailable for one JV hotel; 2. Available data only; 3. Data of entire group; 4. Data of hotel operations only
Source: Deloitte Research & Analysis, The Stock Exchange of Thailand
95
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Executive Summary
Final Report
Dated 9 June 2008
Strategic Partnership: Potential Targets –
HQ: New York, NY
Portfolio Overview
Ownership and Share Price
• Significant shareholders: Morgan Stanley & Co (17.66%), Fidelity
Management & Research (14.78%), Blackrock Advisors (6.38%)
• Enterprise value band: $1.2bn (current) - $1.4bn (June 2007)
• Key executives: David Hamamoto (Chairman), Fred J.Kleisner
(CEO), Richard Szymanski (CFO)
• Share Price
• 36% Resorts
Total # of Hotels
# of New Hotels
15
JV
9
10
Owned
5
• Hotels: 12 existing & 6 pipeline
• Rooms: 6,800
1
2
4
3
5
7
0
0
Number of New Hotels
Total Number of Hotels
Brand Distribution
% of # of hotels
% of # of rooms
60%
40%
10 0 %
Scottsdale
San Fran.
L.A.
Las Vegas
London
Miami
20%
80%
60%
40%
20%
New York
0%
2
1
Geographical Distribution
80%
3
1984 1988 1992 1996 2000 2004
• Number of Employees: 1,9501
10 0 %
12
10
Share price (US$)
• Operating Model:
30
25
Went public
in February
2006
20
15
10
Jan 04
Jan 05
Jan 06
Jan 07
Jan 08
Key Performance Indicators
Hard Rock
Shore Club
Sanderson
St.Martins
Clift
Hudson
Delano
Royalton
Morgans
07
06
Occupancy Rate
80.1%
77%
ADR
$ 396
$ 319
RevPAR
$ 317
$ 246
3%
7%
Return on Capital Employed
Return on Equity
EBITDA Margin
-9%
-10%
35.1%
30.5%
Profitability – Revenue, EBITDA (US$ million)
Mondrian
0%
09E
08E
07
06
05
Revenue
389.0
345.6
323.0
278.6
260.4
EBITDA
149.3
111.7
113.2
85.1
79.5
04
03
02
Note: 1. As of December 31, 2006 – does not include employees of joint venture restaurants
Source: Deloitte Research & Analysis, Yahoo Finance, Oppenheimer
96
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Executive Summary
Final Report
Dated 9 June 2008
Strategic Partnership: Potential Targets –
HQ: Hong Kong, Location A
Ownership and Share Price1
• Significant shareholders: Bermuda Trust Company Limited (55%),
The Mikado Prviate Trust (50%), Bermuda Trust (Cayman)
Limited (30.6%), Acorn Holdings Corporation (29.6%)
• Enterprise value band: $2.5bn (current)
• Key executives: The Hon.Sir Michael Kadoorie (Chairman),
Clement King Man Kwok (CEO)
20
• Share Price
Portfolio Overview
• 11% Resorts
Total # of Hotels
# of New Hotels
10
7
8
Owned
6
4
• Hotels: 9 existing & 1 pipeline
8
4
6
4
3
2
3
1
2
0
0
• Rooms: 2,874
• Number of Employees:
1989 1993 1997 2001 2005
Number of New Hotels
Total Number of Hotels
Geographical Distribution
Brand Distribution
% of # of hotels
% of # of rooms
10 0 %
10 0 %
60%
Tokyo
Bangkok
Location A
40%
20%
0%
80%
60%
10
5
3
Jan 04
Jan 05
Jan 06
Jan 07
Jan 08
07
06
Occupancy Rate
68%
72%
ADR
$465
$369
RevPAR
$316
$266
Return on Capital Employed
5.5%
6.0%
Return on Equity
16.2%
12.0%
33%
34.2%
EBITDA Margin
Peninsula
40%
US
15
Key Performance Indicators
Quail
Lodge
Manila
80%
5
Share price (HK$)
• Operating Model:
Profitability – Revenue, EBITDA (US$ million)
09E
20%
0%
08E
07
06
05
04
03
02
Revenue
582
479
421
400
323
332
EBITDA
192.1
163.8
139.8
127.4
93.3
95.8
Source: Deloitte Research & Analysis, Company website
97
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Executive Summary
Final Report
Dated 9 June 2008
Strategic Partnership: Potential Targets –
HQ: Dallas, Texas, United States
Portfolio Overview
Ownership and Share Price
• 55% Resorts
• Operating Model:
Total # of Hotels
20
Owned
Managed
15
10
5
4
5
6
7
8
9
14
12
10
1990 1996
Number of New Hotels
% of # of rooms
60%
Middle East
Caribbean
Latin
America
40%
20%
0%
10 0 %
80%
60%
40%
North
America
20%
• Share Price: N/A
Total Number of Hotels
% of # of hotels
80%
• Key executives: John Scott (President & CEO), Susan Aldrige
(SVP & General Counsel), Bob Boulogne(COO), Jim Brackensick
(SVP – Purchasing), George Fong (SVP – Architecture & Design),
Ernest Glidden (SVP – Finanace), Alex Alt (Diretor- Development
& Strategy), Sheri Line (HR Director)
3
2002
Brand Distribution
Tokyo
• Enterprise value band: c.1$bn+
4
0
1978 1984
Geographical Distribution
10 0 %
5
1
0
• Number of Employees: c.5,000
16
2
• Hotels: 17 existing & 6 pipeline
• Rooms: 1,939
• Significant shareholders: Hunt family (50%) and Maritz, Wolff &
Company (50%)
# of New Hotels
Peachtree
Caneel Bay
Al Khozoma
Carlyle
Al Faisaliah
Key Performance Indicators
07
06
Occupancy Rate
ADR
King Pacific
San Ysidro
Cordevalle
Jumby Bay
Anasazi
Las Ventanas
Seiyo Ginza
RevPAR
Return on Capital Employed
Return on Equity
EBITDA Margin
Profitability – Revenue, EBITDA (US$ million)
09E
Rosewood
Revenue
0%
08E
07
06
05
04
03
02
350
EBITDA
Note: 1. Five hotels including Rosewood Corniche, Rosewood Mansion on Turtle Creek, Rosewood Crescent Hotel, Rosewood Little Dix Bay, Rosewood Mayakoba
Source: Deloitte Research & Analysis
98
© 2008 Deloitte & Touche LLP. Private and confidential
Executive Summary
Final Report
Dated 9 June 2008
Strategic Partnership: Potential Targets –
HQ: Hong Kong
Portfolio Overview
Ownership and Share Price
• Significant shareholders: Kerry Group Limited3 (49.6%),
JPMorgan Chase & Co.(5.0%)
• Enterprise value band: US$9.9bn
• Key executives: Khoon Ean Kuok (Chairman), Khoon Loong Kuok
(President and CEO), Man Shing Lui (Deputy Chairman)
• Share Price
• 14% Resorts
Total # of Hotels
60
# of New Hotels
52 10
50
Managed
34
27
40
30
Owned
20
10 1
• Hotels:52
67 8
12
38
43
6
18
4
2
0
0
• Rooms: 20,299
• Number of Employees:
1971
29,6001
1979
1987
Number of New Hotels
1995
2003
Total Number of Hotels
Geographical Distribution
Brand Distribution2
% of # of hotels
% of # of rooms
10 0 %
80%
Oceani
a
Philippines
Other Asia
Thailand
Singapore
8
Share price (HK$)
• Operating Model:
10 0 %
40%
40%
20%
0%
Location A
(inc Hong
Kong)
15
10
Jan 05
Jan 06
Jan 07
Jan 08
Key Performance Indicators
07
06
Occupancy Rate
71%
73%
Other2
ADR
$152
$135
Traders
RevPAR
Malaysia
60%
20
Jan 04
80%
60%
25
Shangri-La
$105
$96
Return on Capital Employed
14.0%
11.6%
Return on Equity
9.5%
7.1%
EBITDA Margin
39.2%
34.9%
Profitability – Revenue, EBITDA (US$ million)
07
06
05
04
03
Revenue
09E
1,219
1,003
842
726
540
EBITDA
478
350
265
20%
0%
08E
02
Note:
1. Headcount of all the group’s managed hotels and resorts; 2. Includes brands of managed hotels; 3. Owned by the Kuok family
Source: Deloitte Research & Analysis, Company website, Yahoo Finance
99
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Executive Summary
Final Report
Dated 9 June 2008
Strategic Partnership: Potential Targets
HQ: Singapore
Portfolio Overview
• 15% Resorts
• Operating Model:
Owned
Managed
• Hotels: 28
• Rooms: 9,646
• Number of Employees: 1,1051
Ownership and Share Price
Total # of Hotels2
# of New Hotels
24 12
26
24
22
10
20
18
8
16
13
14
6
12
9
10
7
6
4
8
5
4
6
3
2
2
4 1
2
0
0
1979 1984 1989 1994 1999 2004
Number of New Hotels
• Significant shareholders: DBS Nominees Pte Ltd(16.05%), C Y
Wee & Co Pte Ltd (13.25%), Wee Investments Pte Ltd (10.12%),
Tye Hua Nominees Pte Ltd (9.34%), Citibank Nominees
Singapore Pte Ltd (7.14%)
• Enterprise value band: US$3bn +
– Acquired Pan Pacific in 2007 for US$4.3 million
• Key executives: Wee Cho Yaw (Chairman), Gwee Lian Kheng
(Group President and CEO)
Total Number of Hotels
Geographical Distribution
Brand Distribution
% of # of hotels
% of # of rooms
Key Performance Indicators
07
Occupancy Rate
Novotel
10 0 %
80%
10 0 %
Australia
North
America4
80%
ADR
Crowne Plaza
Sofitel
RevPAR
Sheraton
Return on Capital Employed
Parkroyal
60%
06
75%
Return on Equity
60%
19%
11%
EBITDA Margin
40%
Asia3
40%
Profitability – Revenue, EBITDA (US$ million)
Pan pacific
20%
09E
20%
Revenue
0%
0%
08E
07
06
05
04
03
474
381
304
273
267
02
EBITDA
Note:
1. In Singapore only; 2. As of Dece0ber 31, 2007; 3. Singapore (4), Location D(3), Malaysia(3), Location B(3), Thailand(1), Indonesia(1), Philippines(1), Bangladesh(1),
Myanmar(1), Location B(1), Location A(1); 4. Canada(3), US(2)
Source: Deloitte Research & Analysis, company website
100
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Executive Summary
Final Report
Dated 9 June 2008
Agenda
1.
Approach
2.
Industry overview
3.
Sector analysis
4.
Strategic options
•
Overview
•
Organic
•
M&A
–
Overview
–
Majority stake corporate targets
–
Strategic partnership targets
–
Iconic property targets
5.
Selected strategy
6.
Next steps
101
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Dated 9 June 2008
Iconic M&A: Iconic Property Approach
Whilst acquiring an iconic property is a proven approach, it is not currently viable for Client X.
However Client X could acquire a “Tier 2” iconic property
Proven approach
•
The strategy of buying a truly iconic
property and then building a portfolio
using the name of this property as the
brand has been popular in the recent
past
– Dorchester Collection
– Langham
– Le Crillon
– Plaza Athenee
– Raffles
Could acquire “Tier 2”
Not viable for Client X
•
However, this would appear not to be a
viable approach for Client X:
– All the truly iconic properties around the
globe are either part of corporate groups
or owned by individuals embarking on a
similar strategy
– If one was available it is likely that the
valuation would consume most of the
$1bn investment capital leaving very
little to fund the growth programme
– Waldorf = Astoria
– The high valuation is likely to reduce the
yield to below 4%
•
There are a number of ‘2nd tier’ iconic
properties in Asia that with the right
investment and approach could form
part of the organic development
strategy:
– Accelerates the increase in the portfolio
– Could bring platform and management
experience if independently owned
– Could bring guests as often property
more well known than operator
– Competition for assets is with sovereign
wealth funds who are investing for
“national good” not just financial returns
102
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Dated 9 June 2008
Iconic M&A: Gateway Cities Ranking Opportunity Recap
The top 6 cities in the ranking represent attractive options for Client X which should be pursued to
provide good regional coverage
Ranking of Luxury Gateway Cities
Indicative Opportunity
Rank from phase 2
Market entry strategy based on insight from local
THL experts and identified opportunities
Potential timeline
Shanghai
1
New build
Year 3
Beijing
2
New build
Year 4
Bangkok
3
Acquire existing hotel or new build
Year 2
Ho Chi Minh City
4
New build
Year 5
Singapore
5
Acquire existing hotel or convert
Year 1
Hong Kong
6
Acquire existing hotel or convert
Year 6
New York
7=
Acquire existing hotel
Medium to long term
Tokyo
7=
Acquire existing hotel or convert
Medium to long term
London
9=
Acquire existing hotel or convert
Medium to long term
Paris
9=
Acquire existing hotel
Medium to long term
City
Source: Deloitte Research & Analysis
103
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Dated 9 June 2008
Iconic M&A: Acquisition Target (1/4)
HQ: Hong Kong, Location A1
Overview
Ownership
• Market Position:
Luxury
• Location:
Bangkok, Thailand
• Rooms:
210
• Built:
1988
• Remodeled in:
2007
• Dining:
7 restaurants & 1 bar
• Significant shareholders: HKR International, Payson Cha.
Management
• General Manager Duncan Palmer who previously managed
two hotels for The Savoy Group. Prior to that he spent twelve
years in senior management roles with the Mandarin Oriental
Hotel Group
• Conference/Banquets: 17 meeting rooms & 2 ballrooms
• Spa:
Yes
• Other:
Squash and tennis courts
Key Performance Indicators
• ’07 occupancy rate: 71%
Awards
• Ranked 8th in Asia for Overseas Leisure Hotels and 10th for
Overseas Business Hotels in the Conde Nast 2003 Readers’
Travel Awards
• Best business hotel in Thailand by Business Asia Thailand
Note:
1. Headquarters of HKR International
Source: Deloitte Research & Analysis, company website
104
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Dated 9 June 2008
Iconic M&A: Acquisition Target (2/4)
Overview
Ownership
• Market Position:
Luxury
• Location:
Singapore
• Managed by:
Sino Group of Hotels
• Rooms:
400
• Opened:
January, 2001
• Built in:
1928
• Dining:
4 restaurants & 1 bar
• Significant shareholders: Ng family
• Conference/Banquets: 7 meeting rooms & 3 ballrooms
• Spa:
Yes
• Other:
The straits room and roof garden
Redevelopment
• Acquired by Sino Land Company Ltd from Urban Redevelopment
Authority with US$72.9 million (S$100million) in 1997.
• Renovation to convert the historic building into a hotel and
development of 1 Fullerton commercial complex cost US$291.5
million (S$400million) and opened in 2001.
Awards
• 2008, 2007: Conde Nast Traveller Gold List Hotel
• July 2007: Leading Hotels in the World in Travel & Leisure’s
World’s Best Awards
• October 2006: Ranked #1 in Asia by Conde Nast Traveller
Source: Deloitte Research & Analysis, company website
105
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Executive Summary
Final Report
Dated 9 June 2008
Iconic M&A: Acquisition Target (3/4), Conversion Opportunity
HQ: Singapore
Overview
Ownership
• Market Position:
A fully member-oriented club
• Location:
Singapore
• Managed by:
Owners
• Rooms:
None
• Built:
1926
• Remodeled in:
2002
• Dining:
4 restaurants & 2 bars
• Owned by the National Parks Board of Singapore
• Leased by: The Legends Fort Canning Park Pte.Ltd., which is
owned by: Ms.Goh Min Yen (Executive Chairman – daughter
of Mr. Goh Eng Wah), Mr. Oh Chee Eng (CEO), Mr.Goh Eng
Wah (founder of Eng Wah Organisation)
• The family is also behind listed cinema operator Eng Wah
Organisation
• Conference/Banquets: 8 function rooms & 1 ballroom
Management
• Spa:
Yes
• Mr. Oh Chee Eng (CEO), Mr.Herbert M. Hofer (GM)
• Other:
Tennis courts, member’s lounge, card rooms
Acquired
• The National Parks Board granted the new owners with a 30year lease on the 11,148 sq m site for SGD85 million in 2002
Affiliation
• Members attain access to The Legends Golf & Country
Resort in South Carolina, US
Source: Deloitte Research & Analysis, company website
106
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Executive Summary
Final Report
Dated 9 June 2008
Iconic M&A: Acquisition Target (4/4)
HQ: Hong Kong, Location A1
Overview
Ownership
• Market Position:
Luxury
• Location:
Sentosa, Singapore
• Rooms:
215
• Opened:
1991 as The Beaufort Hotel
• Renamed in:
2002 as Sentosa Resorts & Spa
• Dining:
Two restaurants & two bars
• Significant shareholders: HKR International, Payson Cha
Key Performance Indicators
• ’07 Occupancy rate: 68%
• Conference/Banquets: 24 meeting rooms & 3 ballrooms
• Spa:
Yes
• Other:
Golf club, Seven Eden Wellnes Centre
Relaunch
• Previously known as the Beaufort Singapore, it was renamed
as The Sentosa Resort & Spa after a US$10 million
upgrading of the property.
• This includes Singapore’s first destination spa, Spa Botanica
• Sentosa’s branding strategy is to align itself closely to the
destination in which it is located and to earn itself an
independent identify
Note:
1. Headquarters of HKR International
Source: Deloitte Research & Analysis, company website
107
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Executive Summary
Final Report
Dated 9 June 2008
Agenda
1.
Approach
2.
Industry overview
3.
Sector analysis
4.
Strategic options
5.
Selected strategy
6.
•
Foundation stage
•
Growth stage
•
Financial implications
Next steps
108
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Executive Summary
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Dated 9 June 2008
Selected Strategy: Key Decision Making Questions
There are 4 key questions that Client X needs to answer that will help determine which strategy to
chose
Question
Organic (inc. potential property
acquisition)
Strategic partnership
1.
Is your vision to be a hotel and brand operator?
If yes, then need to follow an organic growth
strategy
Possible in long term if able to purchase a
majority stake
2.
Are you willing to recruit an external CX team inc:
If yes, then possible to follow an organic growth
strategy
If no, Client X will have to pursue strategic
partnership as the risk of failure in organic will
be very high given current management
experience
- Provide them with autonomy?
- Provide them with a commensurate package?
- Provide suitable incentives, inc. equity?
- Incorporate and HQ the company outside
Location Y?
3.
What is your risk appetite?
Requires appetite to be high given uncertainty of
organic development
Require lower risk as investment in
established company
4.
What is your investment capability?
Investment capability will determine the approach
– either pure organic or accelerated growth via
property acquisitions and therefore the level of
returns
• Level of investment will determine the scale
of company that can be invested in and the
amount of control within that company
• Additionally will determine how much
further investment is available for sliver
equity in real estate development, and
therefore how attractive to a strategic
partner Client X will be
Source: Deloitte Analysis
109
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Dated 9 June 2008
Selected Strategy: Strategic Options Overview
Deloitte are suggesting an initial 2 dual track strategy for c. 3 months to determine which route is
going to fit with Client X objectives and provide the best option longer term
Strategic Partnership
•
Initial exploration of potential for strategic partnership
with luxury hotel company
•
Estimated timeline of c. 3 months to know whether or
not this option will achieve Client X goals
Dual track strategy
Client X can initially pursue a dual track
strategy, with key benefits:
• Ensure that Client X moves on
• Outlay of costs during the initial phase is
minimal
• Creates maximum impact in short
timeframe
Organic Development (inc. potential property acquisitions)
•
Organic development including potential for acquisition
of c. 2 properties in key gateway cities
•
Initial activity will be low cost and create positive growth
platform even if strategic partnership is deemed
achievable after initial 3 month period
Source: Deloitte Analysis
110
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Dated 9 June 2008
Selected Strategy: Roadmap – Proposed Approach
Whichever track is followed Client X will need to follow a 3 stage approach. 1. Foundation Stage Initial fix of core product; 2. Initial growth stage - lay foundations for growth either via organic
approach (inc. possible acquisition of tier 2 iconic properties) or strategic partnership; 3. Secondary
growth stage which may include full corporate M&A
1. Foundation Stage
Organic
• Fix Division X
• Brand research
Iconic
• New luxury hotel product by
• Acquisition of well known
Greenfield/Brownfield
“iconic” hotel
development, property
• Icons fall into 2 categories:
conversion, lower grade hotel
– Tier 1 – Globally recognised
upgrade
brand
• May also include reflagging of
luxury property/ies via
acquisition (overlap with
corporate)
• Corporate governance activity
Strategic Partner
•
•
Investment in minority stake •
within corporate chain
Includes management of
existing hotels by partner
and sliver investment in
future real estate pipeline
– Tier 2 – Locally recognised
product based on
architecture, location, service,
history
Corporate
Acquisition of a luxury
corporate chain
Potential to convert strategic
partnership into full corporate M&A via
majority acquisition in longer term
3. Secondary growth stage
2. Initial growth stage
• Recruit CX team
Based on
pragmatic/
opportunistic
implementation,
activities may
overlap between
stages
Source: Deloitte Research & Analysis
111
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Executive Summary
Final Report
Dated 9 June 2008
Selected Strategy: Key Growth Drivers and Success Factors
The key growth drivers for each strategy is the addition of hotels into Client X portfolio and the level of
investment available. Success is determined by experience within either management or advisors
Option
Key Growth Driver(s)
Key Success Factors
Examples
Organic
Development
• Growth is going to be driven by number of new properties added
to the existing portfolio, either by Greenfield/ Brownfield
development, conversion or acquisition and upgrading of existing
properties
• Strong and experienced CDO
• Mandarin
Oriental
–
Size of growth will depend on choice of location (and achievable
RevPAR) along with size of hotel(s) and extra revenue generating
facilities
• Availability of locations
• Efficient development process from origination through to
completion
• Shangri-La
• Acceleration of ramping period to mature operation
• Choice of location may be based on factors such as forecast
demand and supply, current penetration levels and ease of entry
into market
Iconic Acquisition
• Availability of locations
• Value add proposition for acquisition
• Acquisition of assets to add into Client X portfolio
• Strong M&A negotiation skills
• Dorchester
Collection
• Ability to execute – funds and credit
• Langham
• Speed of completion and integration with Client X
Corporate
Acquisition Majority
• Availability of targets
• Timing and approach
• Type and make up of corporate acquisition
• Value add proposition for acquisition
• Four
Seasons
• Strong M&A negotiation skills
• Price
• Availability of equity and credit
• Post merger integration activity (e.g. 100 day plan)
Strategic
Partnership
• Size of investment
• Timing and approach
• Rosewood
• Availability of funds for investment in real estate
• Rationale for acquisition and WIIFM1
• Aman
–
• Impact of brand and operations on Division X
Rationale could include investment in rollout properties, which would
require further capex investment
• Effective contract negotiations for matters relating to operations
and leverage of expertise to improve Client X performance
• Board seat(s)
Note:
1. What’s in it for me
112
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Dated 9 June 2008
Selected Strategy: Available Funds
The funds available to Client X have a significant impact on the strategies that can be pursued in the
short term, although subject to timing of funds long term all 3 strategies are possible
Funds available
Implications
•
Our understanding of Client X fund availability:
•
Year 1-2: $300million (Equity and Debt)
•
Year 3-5: $700million (Equity and Debt)
•
Year 5+: Unknown
Available funding in years 1 and 2 is not enough to
purchase either a corporate or an iconic property (tier 1 or
2), suggesting that initially only 2 potential options are
available:
1. Organic growth
2. Strategic partnership
•
Greater funds may be made available subject to need, but
will require access to external funding sources
Note:
•
Accessing external funds would require Client X to meet
investment criteria of external sources. This would limit the
ability of Client X to invest in iconic properties that may be
the basis of a rollout, given the low IRR that would be
achieved based on the premium price required
•
Subject to timing of funding in year 3-5 it may be possible to
follow all 3 strategic options
Renovation funds for Division X are separate that noted above
113
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Dated 9 June 2008
Selected Strategy: Comparison of Strategic Options
Whilst a higher risk option than strategic partnership, organic growth would enable Client X to remain
a hotel operator
Organic (inc. potential property acquisition)
Strategic Partnerships
Implementation Risk – People
High
Low
Implementation Risk – Investment
• High
• Medium/low
• $1bn [Yr 1-7]
• $1bn [Yr 1-7]
Returns
IRR 22% [15x]
TBD
Recruit CEO and Team
Yes
• ?
• Will require hotel real estate asset management expertise
Autonomous hotel business
OpCo/PropCo structure
Client X full potential
• Yes
• ?
• Required to attract top team and enable value creation
• Subject to specifics of strategic partnership
• Yes
• Yes
• Maximum flexibility for debt financing and asset value over time
(leverage asset business)
• Driven by tax benefits
Yes [10/10]
• R/E = Yes, Ops = No [Yr 1-5]
• Minimises investment requirement
Brand awareness
• Yes
Yes
• Key criteria for selection of strategic partner
• Growth of hotel company will increase power and value of brand
Platform for growth in operations
Yes
Possibly over longer term subject to JV/majority investment
Brand ownership
Yes
Own a share of brand, but not direct control
End State in yr 5/10
• 10/10
• 10/10
• OpCo and PropCo
• OpCo
–
–
Minority Yr1-5
Majority Yr 5 ++
• PropCo
–
–
4 @ yr 5
10 @ yr10
Source: Deloitte Research & Analysis
114
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Final Report
Dated 9 June 2008
Agenda
1.
Approach
2.
Industry overview
3.
Sector analysis
4.
Strategic options
5.
Selected strategy
6.
•
Foundation stage
•
Growth stage
•
Financial implications
Next steps
115
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Executive Summary
Final Report
Dated 9 June 2008
Foundation Stage: Key Recommendations – Summary
There are 5 foundation steps that Client X needs to undertake prior to any growth strategy
Category
1. Recruit experienced CEO
2. Create autonomous hotel business
Detail
• Experienced both in operational efficiency and growth through development and M&A
• Will recruit CX team particularly COO, CDO and CMO
• Separate legal, accounting and reporting entity
• CEO reports to Mr Sung
• Real estate requires deep skills to maximise value and ‘challenge’ operations
3. Create Op Co/Prop Co structure within
hotel business
4. Realise the potential of Division X
5. Conduct brand awareness research in
AsiaPac
• Operational focus gravitating towards brand as key driver of shareholder value
• Enables leverage of PropCo
• Improve GOP through operational efficiencies
• Complete refurbishment to global 5 star standards
• Need to ascertain true strength of Client X brand in the identified key markets
• Will directly impact nature of growth strategy
Source: Deloitte Research & Analysis
116
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Executive Summary
Final Report
Dated 9 June 2008
Foundation Stage: Corporate Governance – Ownership Structure
As a subsidiary Client X Company Ltd. can demand the right level of support, continuity and visibility
with adequate independence and autonomy for the growth and expansion strategy with responsibility
for new CX team
Business Unit
Subsidiary
Shilla
Shilla
The Shilla Hotel Co. Ltd.
Current
Shilla
Divisions
CDO
Description
CFO
CMO
COO
Client X
CFO
Client X
Client X Hotel Co. Ltd.
CMO
COO
Current
Client X
Divisions
CDO
CFO
CMO
JV
Samsung
Partner
Client X Hotel Co. Ltd.
Current
Client X
Divisions
CEO
CEO
CDO
Joint Venture
Client
Samsung
X Corp..
The Shilla Hotel Co. Ltd.
Current
Shilla
Divisions
CEO
Spin-Off
CEO
COO
CDO
CFO
CMO
COO
• Client X reports to Client X board
• Client X reports to Client X CEO
• Client X is a separate legal entity but
reports to a Client X Corp entity
• Client X reports to Client X board and JV
Partner
• Simple structure
• Gives hotel development visibility
• No change to current operations and
management of group
• Simplifies hierarchy by having Client X
report only into the CEO
• Indicates the importance and scale of
the strategy
• Gives clear indication of the importance
and scale of the strategy
• Smooth transition
• Dotted line allows for sharing of
information, co-ordination and
consistency of Client X brand name
• Provides clear governance: source of
funding, responsibility and ownership of
strategy
• Might have positive market buy-in by
linking of iconic M&A activity to JV
Partner
Pros
• Provides dual sources of resources such
as funding / budgeting
• Gives flexibility in choosing operating
model (OpCo/PropCo etc.)
• Gives flexibility in expanding to different
locations
• Insufficient visibility and support for
building a luxury hotel portfolio
Cons
• Need to manage relationship with Client
X board although they are not officially
linked to Client X
• Need for more structure in case of multimarket and multi-hotel expansion
• Need to ensure that visibility with CEO
provides the necessary support an
relays the importance of the growth
strategy regardless of option: organic or
M&A
• Restructuring needed to shift current
hotel portfolio into new structure
• Restructuring needed to shift current
hotel portfolio into new structure
• Need for co-ordination when using Client • Divides governance between JV Partner
X name across the business units
and Client X
• Harder to maintain Client X brand
consistency with separation of portfolio
Note:
Current Client X Divisions: Duty Free, Fitness / Direct Sales, New Business, Management Administration, Strategy, Internal Audit
Source: Hotels Magazine; Deloitte Research & Analysis
117
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Executive Summary
Final Report
Dated 9 June 2008
Foundation Stage: Corporate Governance – Operating Model
An OpCo/PropCo operating model can give Client X Company Ltd. the structure needed for long term
and sustainable growth and expansion but local tax considerations are paramount
External Sale and Leaseback
(S&LB)
Assets
Property
Rent
Investor
OpCo / PropCo
Assets
Hotel Shilla
Co. Ltd.
OpCo / PropCo Joint Venture
Rent
EBITDA
Hotel Client X
Co. Ltd.
Description
OpCo
Hotel Shilla
Co. Ltd.
Equity
Assets
£/Equity
PropCo JV
Rent
All operational
activity
OpCo
• Involves Client X. disposing of commercial property for its fair
market value and immediately taking a long lease back from
the purchaser. Client X. would retain operational control for
the duration of the lease
• Client X. would transfer commercial property to a new subsidiary • Client X. would transfer commercial property to a new subsidiary
(PropCo) for its fair market value. PropCo services the debt
(PropCo) for its fair market value. PropCo sells equity to a JV
using rental received from the operating company (OpCo). Client
partner. Third parties can contribute cash, skills etc., while Client
X Co. would retain operational control and, via the PropCo,
X. Would retain operational control and, via the PropCo, property
property equity upside
equity upside
• Crystallise value – leveraging any differential between
corporate and property valuations
• Retain ownership of property and capital appreciation upside
• Retain interest in property; capture residual value
• Retain operational control
• Retain operational control
• Reduce WACC
• Benefit from third party expertise, cash etc.
• Independent exits for OpCo and PropCo
• Reduce WACC and any development risk
• Cash available to de-gear/distribute/re-invest etc.
Pros
£/Expertise
£/Equity
All operational
activity
Investor
Cash
PropCo
• Lease payments should be less than debt interest
• Retain operational control of the hotel portfolio
• Independent exits for OpCo and PropCo JV
• Reduce WACC and financial risk
• Loss of freehold interest in favour of lease
• Possible arbitrage - property/corporate valuations
• Possible arbitrage - property/corporate valuations
• Loss of capital appreciation upside
• Only a portion of property assets’ investment value is realised
(dependent on gearing)
• Only a portion of property assets investment value is realised
dependent on gearing
• Highly geared structure with banking covenants over both OpCo
and PropCo
• Highly geared structure with banking covenants over both OpCo
and PropCo JV
• Full banking and property due diligence required
• Shareholder agreement to regulate JV relationship
• Increased operational gearing
Cons
• Full banking and property due diligence required
Impact Growth
Options
• Not viable for a long term growth strategy regardless of
option: organic, iconic M&A, corporate M&A, hybrid
• Can be used for iconic M&A, corporate M&A and hybrid growth
options where third party skill and experience is already
assumed to be gained in the acquiring of these hotels and can
also be leveraged for organic hotels
• Can be used for organic growth option in order to gain that third
party investment and expertise while mitigating risk
Source: Deloitte Research & Analysis
118
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Dated 9 June 2008
Foundation Stage: Corporate Governance – Organisational Structure
Whichever strategic option is chosen, the high-level organisation structure remains the same, but the
roles within the structure vary as will the consequent job description
CEO
Executive
Management
Area of
responsibility
Development
(CDO)
Project
Development &
Construction
Product
Development
Finance
(CFO)
Finance
Sales & Marketing
(CMO)
Investment &
Strategic Planning
Real Estate
Option A:
Organic
Technology
Organisational
Effectiveness
Marketing
• Construction of hotels including external space
• Coordinate budgeting process
• Refurbishments and renovations
• Define purchasing strategy and policies in
order to obtain synergies and cost efficiency
• Allow for seamless processes throughout hotel
portfolio through use of technology
• Build relationships with and develop insight into
customers (end users / intermediaries)
• Supply chain / inventory management
• Investment approval CAPEX, ROI
• Analyse competitor information
• Take strategic direction from Brand
• Take budget direction from Finance
• Determine brand architecture, brand plan
• Maintain facilities and standard of brand
• Drive development capability for M&A
• Hotel refurbishments / renovations
• Investment approval CAPEX
• Determine how to use iconic brand (reverse
branding)
• Leverage existing relationships with customers
(end users / intermediaries)
• Coordinate budgeting process, ROI
Iconic M&A
• Run hotels within brand expectations
• Manage promotions, pricing and distribution
• Responsible for real estate management
Option B:
Communications &
PR
Sales
Operations
(COO)
• Maintain level of operations
• Run hotel within brand expectations
• Leverage iconic operations with Client X
• Assess value of brand and other intangibles
Option C:
Corporate
M&A
Option D:
Hybrid
• Development economies of scale
• Drive development capability for M&A
• Determine brand architecture, brand plan
• Hotel refurbishments / renovations
• Investment approval CAPEX
• Direct existing development capability
• Assess value of brand and other intangibles
• Leverage existing relationships with customers
(end users / intermediaries)
• Maintain consistency in constructions,
refurbishments and renovations throughout
Client X portfolio
• Drive development capability for JVs, M&A and • Determine brand architecture, brand plan
managed hotels
• Leverage and integrate existing relationships
with customers (end users / intermediaries)
• Coordinate budgeting process
• Development economies of scale
• Support development capability
• Use and improve on operations from M&A and
incorporate throughout Client X
• Run hotel within brand expectations
• Analyse competitor information
• Analyse competitor information
• Purchasing economies of scale
• Allow for seamless processes throughout hotel
portfolio through use of technology
• Supply chain / inventory management
• Manage relations with hotel managers
• Run hotel within brand expectations
• Investment approval CAPEX, ROI
• Responsible for real estate management
Source: Hotels Magazine; Deloitte Research & Analysis
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Foundation Stage: Marketing Strategy – Brand Strategy
Brand name and architecture formation requires market research to understand cultural name
implications across entry and customer source markets for the strategic options chosen
Keep Separate Names
• Acquired brand already has a
strong, established image and
identity
Reasons to
choose
individual,
linked or new
brand names
Merge or Link Names
• Each brand has unique and
complementary values
• Client X brand would not add value
• The brand is the result of a joint
venture
• There are potential risks to Client X
brand image by linking to acquired
brand
• Each company maintains
significant ownership in joint
venture
Example:
Example:
Mandarin combined
with The Oriental
acquired
Create a New Name
• Support a repositioning strategy
• When brand value is not significant
or out of line with target markets
• If brand value of purchased hotel
has significant negative
connotations
Note:
Rarely done and requires immense
brand spend
Choose One Name
• The acquired brand is weak or
narrow
• The Client X brand adds significant
value
• The acquisition is being integrated
into an existing Client X. brand
portfolio
Example:
rebranded
Indicative strategy for brand name change on Client X growth and expansion strategy options
•
n/a
•
n/a
•
If after conducting market research,
Client X is regarded as an inappropriate
name for international use, option would
be to create a new name
•
One corporate name (such as Client X.)
can be utilised in the case of organic
growth
•
Iconic brand name should be kept
separate
•
Iconic brand name can be used for
reverse branding of or linking to Division
X e.g. Client X by The Ritz Carlton
•
n/a
•
Leverage iconic brand name to Client X
•
Perhaps, in order to retain Client X
brand strength in Location Z – Division X
and / or Jeju names can remain
unchanged
•
Depending on the brand purchased the
name can be merged with Client X e.g.
The Rosewood Client X
•
If after conducting market research,
Client X / M&A brand are deemed not
appropriate names, option would be to
create a new name
•
Depending on the brand purchased the
name can be used for reverse branding
of The Client X. Portfolio or vice versa
•
Iconic brand name should be kept
separate
•
Brand architecture would have to be
created to classify the different hotel
types within the portfolio
•
n/a
•
Iconic brand name can be used for
reverse branding of The Client X.
Portfolio or vice versa
Option A:
Organic
Option B:
Iconic M&A
Option C:
Corporate M&A
Option D:
Hybrid
Note:
Brand architecture refers to the collection of brands within a brand portfolio; Choosing of brand name would need to be conducted via focus groups across the gateway cities and
customer source markets
Source: Deloitte Research & Analysis
120
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Foundation Stage: Marketing Strategy – Distribution Strategy
For luxury hotel expansion, there are several direct and indirect distribution channels that must be
efficiently utilised, but use of channels vary by growth option
Option A:
Option B:
Option C:
Option D:
Organic
Iconic M&A
Corporate M&A
Hybrid
Distribution Strategy
• Initially the sales force plays an
important role in creating
awareness and consideration for
the brand
Direct
CRM / sales force
Website
Telephone
Walk-ins
Email
CRS
• As portfolio grows, CRS would be
one way to have seamless
distribution throughout group
• In the longer term brand
recognition and a larger luxury
portfolio should drive customers to
direct distribution
• Customers are driven directly to
this brand
• Sales force, website, email and
telephone would be important
channels especially when
convincing customers of the M&A
impact and/or reverse branding
• Use website of iconic brand to link
to Client X
• Leverage CRM system
• Sales force, website, email and
telephone would be important
channels especially when
convincing customers of the M&A
impact and/or reverse branding
• Integrate Client X into existing CRS
• Use CRS for cross and up selling
across Client X. new portfolio
• Leverage CRM system
• Train sales force to cross sell
• Train sales force to cross sell
• To create awareness in the luxury
space GDS and alliances should
be formed and leveraged including
LHW, GHA etc.
Indirect
Global distribution
system
Travel agencies
Tour operators
E-channels
Alliances
• Initially promotions should be
targeted at travel agencies, tour
operators, e-channels etc. specific
to the markets
• Leverage GDS to improve
awareness of Client X and/or
reverse branding
• Link GDS to internal inventory
management systems for efficient
and accurate customer bookings
• Other channels have less impact
for an iconic brand but can also be
leveraged to raise awareness of
Client X and/or reverse branding
• Depending on size of acquired
company, leverage existing direct
relationships with channels
• Opportunity to leverage website of
iconic brand to cross-sell
• Re-direct traffic from corporate
M&A direct sales channels
• Common sales force, CRM system,
website, email and telephone
would be channels used to
communicate with customers on
both the M&A impact and to
advertise new and re-branded
properties (whether through organic
growth or corporate M&A)
• Leverage the increased importance
of the larger group for existing
indirect channel relationships as
previously separately honed by
Client X, the iconic brand, and the
corporate M&A target
Source: Deloitte Research & Analysis
121
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Foundation Stage: Marketing Strategy – Promotions Strategy
The reason for executing promotions and the channels used to deliver the promotions differ
depending on organic or M&A strategy
Promotions
Strategy
Promotions
objectives
Option A:
Organic
Option B:
Iconic M&A
Option C:
Corporate M&A
Option D:
Hybrid
• Creating awareness for the brand in gateway city
• Link existing promotions of
markets for both domestic and international travelers
iconic brand to Division X
• Link existing promotions of M&A
brand to Division X
• Use PR and high marketing budget spend to drive
potential customers directly to website
• Link existing promotions of
Division X to iconic brand
• Use promotional budget to ‘convince’ GDS players
and opinion leaders/trend setters to recommend
Client X hotels
• Use PR that comes from
buying the iconic brand to
increase awareness for other
luxury hotels in Client X
portfolio and create positive
association
• Link existing promotions of Division • Until re-branded, link promotions of
X to M&A brand
corporate M&A properties to iconic
brand
• Use PR that comes from M&A to
increase awareness for other luxury • Use PR that comes from buying the
hotels in Client X portfolio
iconic brand and the corporate to
increase awareness of and create
• Use hotel investment, luxury and
positive associations between the
luxury THL events as a platform to
iconic brand and Client X brand
gain market buy-in and approval
• Engage indirect distribution network through forming
relationships rather than pricing promotions e.g.
through holding THL and luxury PR events
• Focus on direct distribution
network for formulating
promotions
•
•
Promotions
channels
•
•
• Link existing promotions of iconic brand
to Division X
• Focus on direct distribution network • Focus on direct iconic brand distribution
for formulating promotions
network for formulating promotions and
cross-selling
• Use combination of ATL (creating
Entice luxury trendsetters to convince the wider
• Focus on BTL channels for
awareness of the new group of
• Focus on BTL channels for creating
market of the new hotel group
creating cross and up selling
hotels and management); BTL
cross and up selling
channels and CRS (for fostering
Use ATL marketing channels to create awareness
• Use CRM to determine the
• Use ATL marketing channels to create
cross and up selling)
and consideration for the brand (television, luxury
segmentation of the customers
awareness and consideration for the
magazines)
and motivation for staying at
• Use CRM to determine the
organic growth properties (television,
iconic brand and at other Client
segmentation of the customers and
luxury magazines) and its positive
Use ‘emerging’ channels to promote brand e.g. hotel
X luxury hotels and determine
motivation for staying at M&A brand
association with the iconic brand
alliances, hospitality complementary alliances (rental
the right type of promotion to
and at other Client X luxury hotels
cars, airlines, trains etc)
offer (room, service,
and determine the right type of
Apply search engine optimisation; key words such
complementary gift, loyalty)
promotion to offer (room, service,
as: luxury, [gateway city] etc. bring up Client X
complementary gift, loyalty)
hotels
Note:
ATL = above the line marketing e.g. mass media campaigns; BTL = below the line marketing e.g. email and word-of-mouth marketing
Source: Deloitte Research & Analysis
122
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Dated 9 June 2008
Foundation Stage: Marketing Strategy – Pricing Strategy
Price setting, execution and optimisation can vary across the different growth options
Pricing
Strategy
Option A:
Organic
• Rack rate based on the price points of other
recently constructed luxury hotels in close proximity
Price Setting1
• Assess price reaction of other hotels that might use
Client X market entry as a reason to raise prices
resulting in a smaller gap than expected between
lower scale segments and luxury
• Use comparative CRM data for determining
segments and rate card
• Carefully construct promotions and distribution
frameworks
Price
Execution
• For sales force promote incentives based on
‘value/quality’ of customer
Option D:
Hybrid
• Understand rack rate of
• Understand rack rate of competitive
• Iconic brand rate remains the same; corporate M&A and
competitive set of hotels in city;
set of hotels in city; but most likely
organic brands should be priced consistently across Client X.
but most likely leave rates
leave rates untouched (not advised to
new portfolio
untouched (not advised to
decrease rates)
• Assess price reaction of other hotels that might use Client X
decrease rates)
• Link existing CRM data used for
market entry as a reason to raise prices resulting in a smaller
• Assess existing CRM data
determining segments and rate card
gap than expected between lower scale segments and luxury
used for determining segments
to existing system for Client X to allow
• Link existing M&A CRS and CRM data used for determining
and rate card which might be
for cross and up selling
segments and rate card to existing system for Client X and new
leveraged for current Client X
organic hotels to allow for consistency and cross and up selling
portfolio
• Assess and remove any
unnecessary
promotions/incentives,
generally not needed for an
iconic brand
• Assess and remove any unnecessary
promotions/incentives
• Assess and remove any unnecessary promotions/incentives
• Use larger portfolio of hotels as ‘bargaining power’ with indirect
distribution
• Create select arrangements where possible
• Use cross and up selling across hotels as a means of
executing prices and reducing revenue leakage across Client
X.
• Assess existing pricing and
revenue management
software; decide if to replicate
within Client X
• Develop interlinked CRM, GDS and pricing software • Assess historical and forecast
(revenue/occupancy management) to determine
data for demand planning
best rates
• Software can seamlessly and automatically produce
rates with minimal manual interpretation (segment,
occupancy)
Note:
Option C:
Corporate M&A
• For indirect sales, promote incentives based less on
fees and more on actual sale
• Systematically use market knowledge and forecast
information for room and services demand planning
e.g. using competitive rate knowledge to pull
customers by manipulating price at strategic times
Price
optimisation
Option B:
Iconic M&A
• Assess existing pricing and revenue
management software; and demand
planning
• Systematically use market knowledge/historical data and
forecast information for room and services demand planning
e.g. using competitive rate knowledge to pull customers by
manipulating price at strategic times
• Link with CRS, CRM, GDS and
replicate within Client X Company
• Assess existing CRS, pricing and revenue management
e.g. using competitive rate knowledge
software of M&A corporate hotels
to pull customers by manipulating
• Software can seamlessly and automatically produce rates
price at strategic times
based on minimal manual interpretation (segment, occupancy)
1.
Assumes that markets chosen have positive economic forecast e.g. GDP, business index etc. (See analysis from workshops 1 and 2); Existence of
CRS/CRM/software/segmentation etc. is dependent on hotel purchased
Source: Deloitte Research & Analysis
123
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Dated 9 June 2008
Agenda
1.
Approach
2.
Industry overview
3.
Sector analysis
4.
Strategic options
5.
Selected strategy
6.
•
Foundation stage
•
Growth stage
•
Financial implications
Next steps
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Growth Stage: Key Recommendations – Summary
There are 3 key areas of focus in the initial growth stage (subject to the outcome of the dual track
strategy during the foundation stage)
Organic Development
•
Strategic Partnership (subject to outcome
of dual track in foundation stage)
Tier 2 Acquisitions
Begin active investigations into the identified
2nd tier iconic properties in Asia
•
Implement partnership with hotel company
identified during foundation stage
– Probable initial locations Bangkok, Singapore
and Hong Kong
•
Support development of hotel pipeline:
– Both Greenfield/Brownfield and conversion
– Probable locations Shanghai, Beijing and
HCMC
– Research suggests there are no suitable hotel
properties in Shanghai, Beijing or HCMC
Begin active identification of development
opportunities in the prioritised Asian gateway
cities
•
– Financial investment in hotels under
development; and/or
– Support entry of strategic partner into AsiaPac
region (subject to type of company)
– Issue mandate to advisors
– Key benefit of an acquisition strategy is the
acceleration of growth and lower risk of
development
•
Within 10 years aim to open:
8 stabilised1 organically developed properties
•
Within 8 years aim to open :
2 “iconic” properties and 6 other stabilised
organically developed properties
•
Within 10 years aim to open :
10 properties with minority investment
Note:
1. New-build properties typically take 2 years from opening to stabilise revenue
Source: Deloitte Research & Analysis
125
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Dated 9 June 2008
Growth Stage: Strategic Initiatives – Timeline overview
Whilst the initial priority is to get the management team in place, and the main push on organic
development will be done by the new management, there are activities that can start immediately
across all areas
Foundation Stage
0-3 months
Management
team
Mandate to head-hunters
•
Recruit CEO and additional
team based on CEO
requirement
•
Additional recruitment of team
if/as required
•
Begin initial operational
improvements “quick wins”
•
Research strategic activities,
e.g. CRM system
•
New management team to
begin room renovation
•
Implementation of plan aimed
at “best in class” operational
excellence
•
•
Initial growth
Organic Property
Development
Secondary
growth
6-12 months
•
Client X,
Location X
Recruitment of development
director (see management
team)
24 months +
•
Recruitment of management
for hotels as required
Continuation of room
renovation and operational
excellence plan
•
Question regarding Client X
brand subject to brands
acquired via M&A activity
Development director tasked
with sourcing individual
properties and development
sites in Top 5 target locations
•
Agree contracts
•
•
Initiate construction or
conversion activity
Integrate new properties into
Client X system
•
Complete Post Merger
Integration (PMI) activity
•
Continued mandate for iconic
property acquisitions on an
opportunistic basis, subject to
availability of funding
•
Complete PMI activity,
specifically:
•
Continued mandate for
corporate acquisitions on an
opportunistic basis, subject to
availability of funding
Issue mandate to acquire
iconic property
•
Agree targets and make
approaches
•
Complete purchase of 1 (or
max 2) properties
•
Issue mandate for strategic
partnership
•
Implement strategic
partnership (ongoing)
•
•
Appoint CEO with real estate
expertise
Analysis of real estate
opportunities as available with
strategic partner
•
Identify and approach targets
•
Agree terms of partnership
•
Issue mandate to acquire
luxury focused hotel company
•
Agree targets and make
approaches
•
Complete purchase of
corporate, subject to market
conditions and availability of
funds
Corporate M&A
12-24 months
•
•
Iconic Property
M&A
Strategic
Partnership
3-6 months
1. Leveraging platform for Client
X, both operations and S&M)
2. Decide on branding and
associated activities
Note:
Timing indicative only. Actual timings may vary subject to both internal and external factors
Source: Deloitte Analysis
126
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Growth Stage: Strategic Partnership – Rationale
There are 4 steps in the strategic partnership process that will bind the two organisations together
and ensure that goals are aligned
1. Client X investment in
SP
2. Contribution of Client X
owned properties
• Client X invests majority of available
capital in the equity of the strategic
partner
• Client X contributes both Division X
and Client X Jeju to be managed by
the strategic partner
• Own stake in operating company,
but not be an operator per se
• Provides gateway location not in
existing distribution network/portfolio
3. SP investment in Client X
owned properties
• Strategic partner to invest in room
refurbishment of Client X properties
• Enables upgrading of rooms and
repositioning to meet requirements
of strategic partner’s brand
• Reduces capital investment
requirement for Client X in own
property, freeing up capital for either
investment in larger share of equity
in strategic partner (see 1) or future
pipeline (see 2)
4. Client X investment in SP
pipeline
• Remaining Client X capital to be
invested in strategic partner’s real
estate pipeline on a preferential
basis
• Client X to provide (Samsung)
contacts to support development
activity and provide opportunities
• Strategic partner to have proven
track record of successful
development, thereby reducing the
development risk
• Client X to do due diligence on case
by case basis prior to investment in
property
Source: Deloitte analysis
127
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Growth Stage: Strategic Partnership – Company Focus
Depending on whether Client X decided to partner with an AsiaPac focused company or not will
impact both the share available for Client X’s investment capacity and the “story” (rationale) for the
approach
AsiaPac Dominant
Definition (Examples)
Strategic Rationale
Potential Share
Non-AsiaPac Dominant
• Hotel company with dominant focus on Asia Pacific region
• E.g. Shangri-La, Mandarin Oriental, Peninsula
• E.g. Rosewood, Morgans
• Client X to leverage brand strength in Asia Pacific region
• Greater immediate impact on Client X properties
• Client X to leverage contacts in Asia Pacific region for growth
pipeline
• Provide experience of Asia Pacific to management team
• c. <10% for initial $300m investment, with no capital for sliver
investment in real estate
• Low
Client X impact
• Hotel company with no or limited number of properties in Asia
Pacific region
• Given already substantial scale, Client X would have a small impact
on the organisation
• 20% + for initial investment of $300m
• High
• Significant interest/impact as players are of smaller scale
Source: Deloitte Analysis
128
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Growth Stage: Strategic Partnership – Timeline
If a strategic partnership is to be pursued, most of the actions are front loaded in first year
Indicative Timeline
Year 1
Year 2
Year 3
Year 4
Year 5
Foundation Stage
Fix Division X
Expansion (ongoing)
Corporate Governance
• Transfer
management of
existing hotels
• Leverage contacts to find development opportunities
• Create autonomous
hotel business
• Create OpCo /
PropCo structure
Year 6
Year 7
Year 8
Year 9
Year 10
• Invest sliver equity in real estate on an ongoing, pragmatic basis
• Repositioning spend
on hotels
Majority Acquisition
M&A Activity
• Target companies for
investment
To be considered, subject to:
• Financial returns
• Growth opportunities
• Acquire minority
stake
• Ability to buy/willingness to sell
• “Value add” proposition
• View on brand strength
• Capacity to fund deal
Organisational Capability / Requirement
Stage 1: Initial activity
• M&A Target and investment skills
• Contract negotiation for repositioning
Stage 2: Expansion
• Individual development to assist target with development
activity and act as a link to Samsung
• Real estate management expertise
Stage 3: Acquisition
• Capability should be acquired with majority stake.
• Critical to ensure key individuals are retained within the
business
Note:
Buying a minority investment in a company will provide limited control over the growth strategy of that company, even with a board seat. Therefore the management contract model,
segment extension and alternate models are not a choice that Client X will be able to make and therefore not covered here
Source: Deloitte Research & Analysis
129
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Growth Stage: Potential JV Structure
Based around the strategic partnership option, it may be possible to create a JV with the partner
company and invest sliver equity in PropCo
Example JV Structure
Indicative
License fee
Strategic Partner
Transfer of operations people
Client X
% control
• CRS
• Other functions
TBD
Royalties
Sliver equity
• CRM
% control
JV OpCo
JV PropCo
Royalties (tax)
• Operations
• Viable
• Development
• Who invests?
• Brand
Key issues:
Asia-Pacific Hotel
• Marketing
Asia-Pacific Hotel
Asia-Pacific Hotel
?
Asia-Pacific Hotel
External
investors?
Asia-Pacific Hotel
• Critical to understand how
value is realised, e.g. IPO
• There must be firm structures in
place to manage dispute
resolution
Division X
Source: Deloitte Research & Analysis
130
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Dated 9 June 2008
Growth Stage: Implications of Activities
Given the volatility and uncertainty in the current market, Client X should reduce the risk of following a
single growth strategy by leveraging different growth accelerators on a pragmatic basis
Strategic Partnership
Accelerator
Description
Impact on
Brand
Impact on
Development
Iconic Properties
Corporate M&A
•
Start search for partnership, with
anticipation of achievability within 3
months
•
Looking for assets to buy, with an aim
for 2 properties, subject to available
funds
•
“Watching brief” for corporate M&A on
an opportunistic basis, subject to
available funds
•
If strategic partner is found, a decision
will need to be made as to whether to
rebrand the existing portfolio or remain
separate
•
Brand of iconic property will depend on
terms negotiated during acquisition
process and strength of brand
•
Choice regarding development pipeline,
either:
•
Organic pipeline may then either be
branded “iconic” or Client X
Any organic development pipeline that
has been initiated may be leveraged by
the strategic partner subject to
negotiation and alignment with partner’s
strategy
•
Accelerates development, with
properties open sooner than under pure
organic
•
Initially instigated development activity
can be added to the pipeline of the
corporate target
•
Organic pipeline develops in parallel
•
Development strategy to be aligned,
specifically around target cities
•
– Branded as corporate M&A target; or
– Client X and organically developed
properties maintained as separate
Given the volatility and uncertainty in the current market, it is too risky to bet growth strategy on just strategic partnership, iconic or
corporate acquisition. Therefore the strategy should initially be to establish foundations (outlined previously) and plan to grow
organically in 6 cities, supported by the accelerators on a pragmatic basis. The organic development activity will support each
accelerator, whichever is successful over the longer term
Source: Deloitte Research & Analysis
131
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Agenda
1.
Approach
2.
Industry overview
3.
Sector analysis
4.
Strategic options
5.
Selected strategy
6.
•
Foundation stage
•
Growth stage
•
Financial implications
Next steps
132
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Financial Profile: Organic Roll-out Plan
Client X can add eight stabilised hotels to its portfolio within the next ten years
Roll-out Plan (2009-18)
Based on Prioritised Target Cities, Ability to Implement, and Investment Capacity Available to Client X
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
Organic Growth Strategy
New-build – 305 rooms in Shanghai
New build – 516 rooms in Beijing
New build – 384 rooms in Bangkok
New build – 375 rooms in Ho Chi Minh
New build – 478 rooms in Singapore
New build – 463 rooms in Hong Kong
New-build – 305 rooms in Shanghai
New build – 516 rooms in Beijing
Organic and Acquisition Growth Strategy
Acquisition – 478 rooms in Singapore
Acquisition – 384 rooms in Bangkok
New-build – 305 rooms in Shanghai
New build – 516 rooms in Beijing
New build – 375 rooms in Ho Chi Minh
New build – 463 rooms in Hong Kong
New-build – 305 rooms in Shanghai
New build – 516 rooms in Beijing
Note:
The figures presented are strictly illustrative and based on a broad range of assumptions.
It is assumed that it takes two years for new-build hotels to stabilise
Source: Deloitte Research & Analysis
133
Hotel under Construction
Hotel Opened
© 2008 Deloitte & Touche LLP. Private and confidential
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Dated 9 June 2008
Financial Profile: Organic Roll-out Key Assumptions
Based on the following key assumptions, we have calculated the financial impact of the two roll-out
scenarios
Key Assumptions
Indicative
Assumption
Detail
Interest Rates
Based on applicable interest rates for target countries
Construction Period
18 months, with 60% of costs in second half
Construction Costs by Country
Based on Davis Langdon & Seah, with land costs assumed at an additional 20%
Debt to Equity Share
50/50
Ramp-up (until stabilised)
2 years
Profitability by City
Hotel Benchmark bespoke profitability survey less estimated fixed charges and provision for renewals at 4%
Head Office Costs
$3m in year 1, growing to $10m by year 4
Acquisition of Existing Asset
Estimated at 17.5x EBITDA
Number of Rooms per Hotel
Based on average of Hotel Benchmark bespoke profitability survey sample
Note:
The figures presented are strictly illustrative and based on a broad range of assumptions
Source: Deloitte Research & Analysis
134
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Financial Profile: Development Costs – Organic
Construction costs are phased over 18 months, which gives the roll-out scenario highest costs in year
6 at $300m. Total cumulative development costs are c. $900m over the period
Development Costs (2009-18)
USDm
299.3m
300
40.6m
250
195.1m
200
171.3m
48.4m
18.3m
150
258.8m
104.5m
100
16.1m
61.9m
50
23.9m
61.9m
153.0m
146.7m
36.5m
88.4m
0.0m
10.2m
13.7m
2009
2010
2011
2012
2013
2014
Cumulative Costs:
23.9m
85.8m
190.3m
385.4m
684.8m
0
Construction Costs
36.5m
0.0m
0.0m
2015
2016
2017
2018
856.1m
892.6m
892.6m
892.6m
Land Costs
Note:
The figures presented are strictly illustrative and based on a broad range of assumptions
Source: Deloitte Research & Analysis
135
© 2008 Deloitte & Touche LLP. Private and confidential
Executive Summary
Final Report
Dated 9 June 2008
Financial Profile: Development Costs – Combined
A combined organic and acquisition strategy has cumulative development costs of c. $1bn
Development Costs (2009-18)
USDm
300
276.6m
258.9m
250
196.4m
200
171.3m
40.6m
252.7m
150
18.3m
197.0m
99.5m
100
14.0m
155.8m
50
61.9m
36.5m
85.6m
0.0m
10.2m
13.7m
2009
2010
2011
2012
2013
276.6m
535.5m
635.0m
831.4m
0
Cumulative Costs:
153.0m
Construction Costs
36.5m
0.0m
0.0m
0.0m
2014
2015
2016
2017
2018
1002.7m
1039.3m
Land Costs
1039.3m
1039.3m
1039.3m
Acquisition Costs
Note:
The figures presented are strictly illustrative and based on a broad range of assumptions
Source: Deloitte Research & Analysis
136
© 2008 Deloitte & Touche LLP. Private and confidential
Executive Summary
Final Report
Dated 9 June 2008
Financial Profile: Cashflow – Organic
The suggested roll-out strategy will utilise $1bn of invested capital by year 8. Assuming no further
development, Client X could become cash generative by year 9
Cashflow (2009-18)
USDm
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
70m
90m
300
100
-100
-3m
-29m
-71m
-119m
-8m
-3m
-32m
-103m
-300
-222m
-169m
-207m
-304m
-500
-429m
-700
-734m
-751m
-900
-842m
-903m
-1,100
Cashflow
-911m
Cumulative Cashflow
Note:
The figures presented are strictly illustrative and based on a broad range of assumptions
Source: Deloitte Research & Analysis
137
© 2008 Deloitte & Touche LLP. Private and confidential
Executive Summary
Final Report
Dated 9 June 2008
Financial Profile: Cashflow – Organic and Acquisition
A combined organic and acquisition strategy will require more up-front capital investment
Cashflow (2009-18)
USDm
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
67m
89m
94m
300
100
-100
-9m
-3m
-102m
-300
-197m
-274m
-164m
-255m
-500
-532m
-700
-634m
-753m
-900
-1,100
-831m
Cashflow
-847m
-936m
Cumulative Cashflow
-995m
-1004m
Note:
The figures presented are strictly illustrative and based on a broad range of assumptions
Source: Deloitte Research & Analysis
138
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Executive Summary
Final Report
Dated 9 June 2008
Financial Profile: Illustrative IRR
Both the organic and combined approaches could yield favourable IRR. A combined approach offers
lower risks but at relatively lower yields
IRR Assuming Exit in Year 10
Illustrative
•
Assumed EBITDA
Exit Multiple
Organic
Combined
15x
30%
20%
17.5x
34%
23%
20x
37%
26%
Higher organic IRR reflects risk to reward balance as Client X would
benefit from return on development risk compared to accelerating the
development process by buying an existing mature property
Note:
The figures presented are strictly illustrative and based on a broad range of assumptions
Source: Deloitte Research & Analysis
139
© 2008 Deloitte & Touche LLP. Private and confidential
Executive Summary
Final Report
Dated 9 June 2008
Agenda
1.
Approach
2.
Industry overview
3.
Sector analysis
4.
Strategic options
5.
Selected strategy
6.
Next steps
140
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Executive Summary
Final Report
Dated 9 June 2008
Next Steps: Project Activity and Implementation
There are a number of next steps Client X should undertake to fast track the implementation of
whichever strategy is pursued
Fast Track Implementation Process
• Identification and recruitment of CEO
• Creation of new corporate structure (autonomous hotel
business)
• Creation of new operating model (OpCo / PropCo) –
subject to tax benefits
• Client X brand awareness research in key Asian markets
• Start building land bank for development
• Decision on M&A approach
Source: Deloitte Research & Analysis
141
© 2008 Deloitte & Touche LLP. Private and confidential