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					               UK Hotel Industry




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                                             Table of Contents


Hotel Industry: Worldwide Overview .......................................................................3
 Hotel Industry Operating Performance- Worldwide ...........................................................3
    Asia Pacific .............................................................................................................................3
    Australasia ..............................................................................................................................4
    Europe ....................................................................................................................................4
    Middle East & Africa ............................................................................................................4

UK Hotel Industry ....................................................................................................4
 UK Hotel Classification .................................................................................... 5
 London: Outlook ............................................................................................. 6
 London Hotel Property Market ..............................................................................................7
   Group Transactions (2001) .................................................................................................7
   New Hotel Supply (2002) ....................................................................................................8
 Hotel Performance 2001 ................................................................................... 8

UK Hotel Industry: Trends ......................................................................................9
 London ..................................................................................................................................... 10
 Rest Of UK ............................................................................................................................. 10
 Hotel Performance Of Selected Markets ............................................................................ 11

Conclusion .............................................................................................................. 11




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Hotel Industry: Worldwide Overview
According to Andersen, a leading provider of hotel performance data outside North
America, in the year 2000, Hotel industry operating profits growth in Europe averaged
16 percent when measured in Euros, growth in Asia averaged 14 percent when measured
in US dollars whilst in the Middle East growth was restricted to three percent in US
dollar terms.

The five most profitable hotel markets in Europe in terms of IBFC (Income before fixed
charges) PAR

Market              Total Revenue       IBFC              IBFC ratio to IBFC growth
                    € PAR               € PAR             revenue       From 1999
London              90,376              45,564            50%           16%
Paris               92,065              40,142            41%           17%
Amsterdam           78,461              32,228            37%           35%
Rome                94,857              31,627            33%           14%
Milan               82,508              30,868            32%           43%
Source: Anderson Hotel Industry Benchmark Survey

Hotel Industry Operating Performance- Worldwide

According to a press article by Arthur Andersen, published on January 25 2001,
announced preliminary 2000 trading performance data for Asia Pacific, Middle East &
North Africa, Europe and Australasia. Initial indications from the Hotel Industry
Benchmark Survey are that there was a marked variance in rooms yield (RevPAR)
performance, when measured in US dollar (US$) terms, across the globe.

Preliminary 2000 Full Year Rooms Yield Growth In US$

Region                                                     % Rooms Yield Growth
Asia Pacific                                                      11%
Middle East & North Africa                                         3%
Europe                                                            -1%
Australasia                                                       -5%
Source: Arthur Andersen Hotel Industry Benchmark Survey

Asia Pacific

Of the four regions monitored in the survey, Asia Pacific was the best performing market
with rooms yield growth reaching double digits. Early indications are that the region
should witness yield growth of around 11 percent. In many markets, increases in
occupancy over 1999 levels were the main reason for the significant yield growth, as
economic stability and confidence began returning to the region.




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Australasia

Despite the very positive performance across the whole of Asia Pacific, hotels in
Australasia suffered from the relative strength of the US$ to the Australian dollar
(AUD$), and the substantial increase in new hotel supply in many of the key markets.
The preliminary data revealed that rooms yield, in the region down by around 5 percent
over the previous year. Even hotels in Sydney, which reported an 86 percent increase in
rooms yield during September which was the month of the Olympic games.

Europe

The European market, which was enjoying double digit rooms yield growth when
measured in Euros, is suffering from the relative strength of the US$ to the Euro. Rooms
yield growth in US$ terms is flat and it is anticipated that. There would be an overall
decline in rooms yield for the year of around 1 percent. Generally, across Europe gains
were made in occupancy, but these were offset by the more than proportional decline in
average room rates. Two markets that performed at odds with the market trend were
Prague and Istanbul. Both cities experienced rooms yield growth in excess of 20 percent.
Prague benefited from being one of the European Cities of Culture and host to the 55th
IMF and World Bank conference. The exceptional performance of hotels in Istanbul,
however, needs to be viewed against the poor performance witnessed during 1999, when
the city suffered from earthquakes and the impact of the war in Kosovo.

Middle East & Africa

Across the Middle East and North Africa region it was anticipated that rooms yield
growth for the year of around 3 percent. Early indications were that there was a
significant difference in the performance of various countries and of the markets within
each country. Whilst overall the UAE appeared to have experienced rooms yield growth
of 8 percent, rooms yield growth in Abu Dhabi was 1 percent, and Dubai 9 percent.
Even within Dubai there was a marked variance in performance with hotels on Jumeirah
Beach reporting a rooms yielded rise of 22 percent, driven in the main by significant
advances in average room rate. A similar picture was emerging in Egypt, with hotels
located near the Pyramids in Cairo reporting room yield increases of over 25 percent.
Along the west coast of the Red Sea, performance has been very positive, whilst on the
east coast Sharm el-Sheikh has suffered from a proliferation of new supply, causing
rooms yield to fall 10 percent.
Source: Arthurandersen.com

UK Hotel Industry

The UK hotel market generates approximately £13 billion in revenue having achieved
16% growth between 1995 and 1999 with a significant proportion of this increase being
related to the expansion of the budget hotel sector.

The UK industry contributes 7% to the UK’s GDP. The largest proportion of hotel
accommodation in the UK is accounted for by independent hotels, which comprised
75% of the total market in 1999.
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The UK hotel market is influenced by fluctuations in the domestic economy and such
factors include interest rates, unemployment levels and disposable incomes. Other
factors affecting the hotel industry include social and demographic trends, domestic and
international tourism, changes in technology, government policy, legislation and political
factors.

UK hotel industry has transformed itself into a significantly more profitable business in
the 25 years between the Queen's silver jubilee in 1977 and 2001. According to PKF's
hotel consultancy services, profitability across the hotel industry rose from 34.4% of
revenue in 1977 to 41.9% in 2001. The hotel industry has learned to tighten its belt over
the last quarter of a century with departmental costs dropping from 44.8% of revenue to
only 40.2% and total undistributed expenses (such as administration, maintenance and
marketing) also curtailed from 20.8% to 17.9% of revenue.

UK Hotel Classification

In the UK the star-rating system is generally accepted, however there are also AA and
RAC ratings.

First Class Hotels

First-Class Hotels or the ‘upscale’ sector of the hotel industry relates to hotels, which are
graded as being 4 or 5 star, and represents 36% of the UK market. The service and
accommodation provided should fulfil an expectation of luxury, which will probably be
reflected in the price room. Rooms should be comfortable and more spacious lower
grade hotels with additional services such as porterage, 24-hour room service, laundry
and dry-cleaning.

Mid-Range Hotels

Nearly half of all hoteliers will be considered under this bracket with chain hotels tending
to operate as 2 to 3 establishments. They range from smaller family run establishments to
those that are more spacious and employ a greater complement of staff. This section of
hotel industry will include many independent firms that offer affordable and comfortable
accommodation to the masses.

Budget Hotels

The budget sector remains highly competitive as established brands increase in size and
coverage. These hotels tend to be 2-star, which serve the needs of the customer without
offering the range of service found in higher-grade hotels. Typically they offer a room,
which contains a bed with the minimum of amenities but will be competitively priced.
The budget level sector may also include Bed and Breakfasts, as amenities are usually
minimal in family run establishments.




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                           Market Share By Classification



                    36%
                                                              46%




                              18%
                           Mid-Range   Budget   First Class




London: Outlook

Hotels in London went through a bad phase in July 2001 due to drop in occupancy,
average room rate and rooms yield. Regional hotels fared much better with only a 1%
drop in occupancy and an increase in both room rate and rooms yield.

The results of a survey conducted by PFK that includes 106 London hotels reveals a
5.8% fall in occupancy to 83%, a 12.2% decrease in average room rate to £118.45 and a
plunge of 17.2% in rooms yield to £98.36. However, as the July 2000 figures produced
the highest yield ever recorded (£118.83) for London hotels as a result of the
Farnborough Airshow and the American Bar Association, the 2001 figures should be
viewed in this context. Regional hotels are holding their own with only a 1% drop in
occupancy to 76.4% and an increase in both average room rate and rooms yield of 2.8%
and 1.7% respectively.

Preliminary Data:

For July 2001
Rooms Department             2001                  2000               % Change
UK Regional Hotels
(377)
Average Daily Room
Rate Per Occupied           £66.34                £64.56                  2.8
Person
Average Daily Room
                             76.4%                77.2%                  -1.0
Occupancy
Average Daily Rooms
Yield Per Available         £50.70                £49.86                  1.7
Room
London Hotels (106)
Average Daily Room
Rate Per Occupied           £118.45              £134.83                 -12.2
Person
Average Daily Room           83.0%                88.1%                  -5.8

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Occupancy
Average Daily Rooms
Yield Per Available                  £98.36                £118.83                -17.2
Room
Source: Hospitalitynet.org

For January to March 2002

London Hotels                                   2002                 2001        % Change
Occupancy                       %               72.3                 73.6           -1.3
Room Rate                       £               80.82                92.09         -12.2
Room Revenue
                                £               58.42                67.77          -13.8
Yield
Total Revenue Per
                                £               7,995                9,180          -13.3
Available Room

For March 2002

London Hotels                                   2002                 2001        % Change
Occupancy                       %               77.7                 77.8           -0.1
Room Rate                       £               81.23                94.24         -13.8
Room Revenue
                                £               63.11                73.31          -13.9
Yield
Total Revenue Per
                                £               3,175                3,609          -12.0
Available Room



London Hotel Property Market

A number of high profiles deals were concluded in the first half of 2001 despite tough
trading conditions.

Group Transactions (2001)

                                              Number Of        Number Of
      Seller                 Buyer                                                Price (£)
                                              Properties        Rooms
Granda – Le
                      Nomura                     125                 41,000         1,900
Meridien
Nomura (Sale &        Royal Bank Of
                                                  12                  4318          1,250
Lease Back)           Scotland
Granda – Post
                      Six Continents              79                 12,300          810
House
Scandic               Hilton                     154                 10,000          612
Hilton (Sale &        Royal Bank Of
                                                  11                 2,131           312
Lease Back)           Scotland
Principal             Nomura                      17                 2,027           255
Granda –
                      Macdonald                   48                 2,000           335
Heritage
Swissotel             Raffles                     23                 7,287           167

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                  London &
Accor                                       11               1,030                   60
                  Regional
Hilton            Menzies                    3                376                    27

New Hotel Supply (2002)

Nineteen hotels are expected to open in 2002 in London.

            Hotel                     Number Of Rooms                     Location
Hilton GWR London
                                           355                Paddington
Paddington
Grange City                                239                City
Holiday Inn ExCel                          210                Docklands
Crowne Plaza Balckfriars                   203                Balckfriars
Travel Inn Capital ExCel                   202                Docklands
Welcome Break Mill Hill                    202                Barnet
Sofitel London Pall Mall                   186                Westminster
Ibis London Wembley                        165                Wembley
Custom House @ ExCel
                                           157                Docklands
(Extension)
Marriott Park lane                         157                Westminster
Express by Holiday Inn
                                           140                Brentford
Brentford Lock
74 St James Street                         122                Westminster
Express by Holiday Inn
                                           110                Docklands
Stratford
Sunborn Yacht Hotel                        104                Docklands
Travel Lodge Kew Bridge                    104                Kew
Express by Holiday Inn Earls
                                            90                Kensington
Court
Etap London City Airport                    81                Docklands
Eton Town House –
                                            70                City
Threadneedle Street
Premier Lodge Southwark                     55                Southwark
Myhotel                                     45                Chelsea
K+K Hotel George
                                            44                Kensington
(Extension)
Swissotel London – The
                                            43                Holborn
Howard (extension)
Total                                      3,084


Hotel Performance 2001

London is perhaps the best performing European city in terms of occupancy for the last
seven years (2001). Hotels with over 500 rooms faired better than smaller hotels, which is
surprising given that larger hotels drive large volume at the expense of average room rate.




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                         Seasonal Performace Of London Hotel Market (2001)

             100%
               80%
               60%
               40%
               20%
               0%
                     0            2    4       6          8          10         12     14

                                                   Occupancy



The performance of luxury hotels indicated a shortfall of 18% in 2001. As occupancy
levels fell and average room rates came under pressure, London’s luxury Hotelier’s
sought to control costs in order to maintain profitability.

                          Revenue & Profit Per Available Room For The
                                Luxury London Hotel Marlet (£)

                         RevPar


              Average Room
                  Rate


                 Occupancy


                                  0     50         100         150        200        250
                                                   2000   2001



2001 has been clearly a tough year for London hoteliers. The decline in London’s
performance is by no means unique, with other major cities in Europe also suffering a
major degree particularly in last quarter 2001.
Source: Anderson Research



UK Hotel Industry: Trends
The Commonwealth games and Golf Open Championship have given a much-needed
boost to the UK's regional hotel industry, according to preliminary figures released from
the HotelBenchmark Survey by Deloitte & Touche. In July 2002, regional hotels
reported positive occupancy growth for the first time, up 7% from June and 0.7% over
2001, to reach 75%. This growth combined with a small improvement in average room
rate resulted in revPAR* rising 0.9 percent. July's performance increase follows a difficult
first half for the industry, as hotels continued to suffer from the fall in overseas visitors.

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Preliminary year to date figures reveal hotel revPAR down 3.3% on the same period last
year. July's growth is largely the result of increased demand stemming from the
Commonwealth Games, the Golf Open Championship, and to a lesser extent, the
Farnborough airshow.

London

London occupancy fell from 7.6% to 76.6% in 2001 but remained ahead of the rest of
the UK, while rooms yield dropped 12.4% to £85.23. Profitability continued to be higher
in the capital despite a 15.7% dip in IBFC - more than double the 7.0% fall in the regions
- to £22,673 per available room. London suffered worst from the dearth of tourists
during 2001 but still saw a raft of major openings such as Hilton's The Trafalgar, the
Victoria Park Plaza and the Sofitel St James. This was due to a mixture of the lengthy
process involved in hotel development and the innate strength of the London market.
The top end of the market was worst affected with rooms yield in the superior deluxe
category down 18.6% and IBFC dropping 19.3%.

Rest Of UK

Outside London, hotels in England saw a second year of rooms yield growth, with a rise
of 1.6% to £47.87. Average room rate was up 2.3% to £65.39, while occupancy fell by
0.7% to 73.2%. The smallest hotels in England, those with fewer than 100 rooms, fared
best with rooms yield up 4.6% to £35.32. However, hotels with more than 100 rooms
showed better profitability with the highest IBFC at £15,137 per available room.

Hotels in Scotland saw a third consecutive year of rooms yield decline in 2001/2,
although only by a tiny margin - down to £42.80 from £42.83 the year before.
Occupancy also dipped slightly from 69.8% to 68.5%. While total revenue edged up
1.9% to £31,599 per available room, IBFC dipped 2.4% to £10,396 per available room.
Hotels with fewer than 100 rooms were the best performers, with a room yield increase
of 8.4% to £40.25.

 Wales was the main good news story with an occupancy leap of 9.4% to 76.3%, an
average room rate rise of 5.0% to £58.57, and a rooms yield increase of 14.9% to £44.71.
With revenues growing faster than departmental costs, IBFC was up 19.3% to £12,365
per available room. Cardiff helped fuel the rosy statistics with a bumper 2001 -
occupancy rose 12.7% to 73.8% at an average room rate of £52.33, boosted by the
settling in of newer properties and the success of the Millennium Stadium hosting major
sports events.

Occupancy levels in Manchester exceeded 80% as an estimated one million visitors
descended on the City (the last time the market traded at this level was October 2000).
This compares with 68 percent the previous month and 76 percent in July 2002. RevPAR
rose by 17.5 percent

Edinburgh was the only other city to report double-digit revPAR growth. The market
benefited from the 131st Golf Open Championship held between 18 and 21 July 2002 at

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Muirfield. As a result of increased demand, occupancy levels in the Scottish capital rose
7.6 percent whilst gains of 13.7 percent were reported in average room rates.
Source: Hospitalitynet.org


Hotel Performance Of Selected Markets

July 2002                             Average Room                           revPAR
                      Occupancy (%)                      revPAR (£)
                                        Rate (£)                           (Change %)
All UK                       77.3           72                56               -0.3
Regional UK                  75.4           61                46                0.9
London                       82.3          100                83               -2.5
Edinburgh                    83.6           77                64               22.4
Manchester                   81.6           68                55               17.5

2001 to July                          Average Room                           revPAR
                      Occupancy (%)                      revPAR (£)
2002                                    Rate (£)                           (Change %)
All UK                       69.9          71                 49                -6.6
Regional UK                  68.3          61                 42                -3.3
London                       74.2          95                 70               -11.5
Edinburgh                    71.6          68                 49               10.1
Manchester                   70.3          63                 44                -3.2

Average room rates for regional hotels have fallen 8.8 percent in the first seven months
of 2002 compared with 2001, causing revPAR to fall 11.5 percent.

An analysis by average room rate shows that UK hotels with an average room rate of
under £50 have managed to improve average room rates by 2.2 percent during the first
seven months of the year. However, hotels with an average room rate of over £75 have
witnessed a 6.4 percent fall in room rates. As a result, the under £50 segment is the only
one to have experienced any revPAR growth in the seven months to July 2002.
Source: Hospitalitynet.org




Conclusion
The UK hotel industry is now turning to marketing to aid its recovery and to attract
domestic customers to replace those that were lost when the countryside was sealed off
from travellers, as well as those overseas visitors who have yet to return. While hotel
occupancy rates are gradually recovering, the battle for the industry will be getting room
rates back up to premium levels after the deep discounting.




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