Heribert Gangl, K&P Budapest NAPI Conference Budapest, 19 May 2009 Changed rules of the game for hotel owners and investors

2 Table of Content About Kohl & Partner Actual market environment Changes and opportunities for hotel owners Changes and opportunities for hotel investors Conclusio

Changed rules of the game for hotel owners and investors 3 About Kohl & Partner Independent and internationally operating consulting company specialized in the hotel and tourism industry Leading tourism consulting company in Austria with more than 25 years of experience 8 offices in 6 countries (Villach, Vienna, Munich, Stuttgart, South Tyrol, Sofia, Bucharest and Budapest) International team with 45 tourism experts and assistants 3

Changed rules of the game for hotel owners and investors 4 Quality is our Mission Kohl & Partner is … Winner of the Austrian Quality Award 2006 Certified according to ISO 9001 Affiliated member of the UNWTO (World Tourism Organisation) 4

Changed rules of the game for hotel owners and investors 5 Kohl & Partner USPs Austrian tourism know-how combined with local expertise Detailed knowledge of the complex processes in tourism Strong reputation and excellent industry contacts More than 25 years of international experience Services for small, private and large, international hotels 5 Quality and tailor- made solutions for the hotel, tourism and leisure industry by Kohl & Partner

Changed rules of the game for hotel owners and investors 6 Our Customers 6 Public Authorities Private sector Global organizations (e.g. World Tourism Organization, EBRD, UNDP) National authorities (e.g. Tourism Ministry) National tourism organizations Representative bodies of Regions & Republics Municipalities Entrepreneurs and business owners Investors Project developer Construction companies Banks and financial institutions Interest groups Private organizations (e.g. hotel associations)

Changed rules of the game for hotel owners and investors 7 Kohl & Partner – Services for the hotel industry Asset Management and Advisory Market Intelligence Services Feasibility Study Project (Concept) Evaluation Operator Selection Hotel Valuation Hotel Transaction Turn Around Management Other services Hotel Industry Destination Development Tourism Infrastructure

Changed rules of the game for hotel owners and investors 8 Real estate advisor and project management company for domesticand international clients in Hungary and the CEE region Brokerage – a real estate agency firm with only the finest, exclusive properties Project management – building services for the perfect quality buildings on time Lobbying – a specialist team, well-connected with the municipalities, to assist you Mediation – creating a holistic approach to accelerate your project to the utmost 8

Changed rules of the game for hotel owners and investors 9 Table of Content About Kohl & Partner Actual market environment Changes and opportunities for hotel owners Changes and opportunities for hotel investors Conclusio

Changed rules of the game for hotel owners and investors 10 Actual market environment Decreasing tourism demand in Europe, especially in city and business destinations like Budapest or Vienna Dropping occupancy and ADR – lower revenues and yields, especially in the upscale 5/4-star segment Decreasing expenditures (business and leisure travellers) affecting the total service chain – especially additional guest expenses are reduced Lower priced budget- and midscale products benefit Well-positioned and managed hotels are more resistant and better performing

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

Changed rules of the game for hotel owners and investors 12 Actual market environment New hotel developments are slowed down but the market is still alive Project financing currently remains biggest challenge Political framework conditions in Hungary are rather unfavourable (e.g. tax increase, announced real estate tax, cut back on social benefits, etc.) Tourism in Hungary in general is not well organized – lack of professional tourism organizations and efficient structures to support tourism and related businesses

Changed rules of the game for hotel owners and investors 13 Table of Content About Kohl & Partner Actual market environment Changes and opportunities for hotel owners Changes and opportunities for hotel investors Conclusio

Changed rules of the game for hotel owners and investors 14 Changed rules for hotel owners Operational costs are increasing, affecting the operator performance and resulting in decreasing yields and asset values for the owner Many smaller operators are having problems with their cash-flows – flexibility from the owner-side required Re-Evaluation (and negotiation) of operator contracts Open and honest communication between operators, owners and banks essential More involvement required - demand detailed business plans for the next two years and review them on a monthly basis

Changed rules of the game for hotel owners and investors 15 Opportunities for hotel owners Professional asset management: controlling, monitoring and benchmarking makes the difference Understand your business and collaborate closely with your operator jointly searching for possibilities to increase profitability Internal evaluation and re-structering - review your business model and operational concept Know the industry mechanism - don‘t cut back on sales and marketing expenses and maintain rate levels If you have a good operator agreement stay with it – don‘t loose a reliable long-term tenant for your asset

Changed rules of the game for hotel owners and investors 16 Table of Content About Kohl & Partner Actual market environment Changes and opportunities for hotel owners Changes and opportunities for hotel investors Conclusio

Changed rules of the game for hotel owners and investors 17 Changed rules for hotel investors Increased equity capital demand – loan-value ratio of max % when financed locally Rental agreements vs. management contracts without guarentees Contracts without guarentees require top renowned, international operators like Hilton, Intercontinental, Marriott, Accor, Starwood… Professional and profound project due diligence crucial Professional hotel concept and management critical Investment optimization (hotel facilities, room sizes…) important Closer cooperation of all involved project proponents (investor, constructor, operator, consultants) required

Changed rules of the game for hotel owners and investors 18 Opportunities for hotel investors Decreased project costs (especially land and construction costs) – attractive opportunities for investors with strong financial background and equity capital Distressed sales – currently limited as valuations and prices are still too high but keep watching Demand from the operator side is high, especially for their budget- and midscale brands Lack of modern, quality hotels in Hungary and other CEE countries – especially in secondary cities like Györ, Kecskemét, Miskolc, Debrecen, etc. Spa, wellness and health tourism is one of the fastest growing tourism segments in CEE -) good market opportunities

Changed rules of the game for hotel owners and investors 19 Table of Content About Kohl & Partner Actual market environment Changes and opportunities for hotel owners Changes and opportunities for hotel investors Conclusio

Changed rules of the game for hotel owners and investors 20 Conclusio Back to basics or renaissance of common sense Location, location, location even more important again Professional concept and partners are a must Profound market and industry know-how inevitable Lack of quality hotels in Hungary – attractive market opportunities remain If you are convinced of your operator be flexible and patient – support your operator and jointly manage the current turbulent times It‘s time again for realistic yield expectation

Kohl & Partner Budapest Kft. Kölcsey u Budapest Hungary T F E H Kohl & Partner Wien GmbH Wallerstrasse Vienna Austria T F E H Thank you!