Valuation Of:: Hotel Café Royal London

Valuation of:
Hotel Café Royal London

Prepared for
Barco Investments B.V.

Valuation Date:
31 December 2017
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Cushman & Wakefield | Barco Investments B.V. Executive Summary
Valuation Date: 31 December 2017 Valuation of: Hotel Café Royal London
TABLE OF CONTENTS
Executive Summary ........................................................................................ 1
Valuation Report ............................................................................................. 6
Instructions ................................................................................................................................ 6
Basis of valuation ...................................................................................................................... 7
Taxation and costs .................................................................................................................... 8
Property information .................................................................................................................. 8
Valuation ................................................................................................................................... 8
Confidentiality ............................................................................................................................ 8
Disclosure .................................................................................................................................. 8
Reliance .................................................................................................................................... 9
Property Record ............................................................................................ 10
1. Location ......................................................................................................................... 10
2. Description & Accommodation ...................................................................................... 14
3. Structural Condition and Repair .................................................................................... 21
4. Site ................................................................................................................................ 24
5. Environmental ............................................................................................................... 26
6. Statutory Matters ........................................................................................................... 27
7. Taxation ........................................................................................................................ 29
8. Tenure and Occupational Interests ............................................................................... 29
9. Operational Structure .................................................................................................... 31
10. Hotel Operating Market ................................................................................................. 31
11. Hotel Investment Market ............................................................................................... 36
12. Local Hotel Market Analysis .......................................................................................... 39
13. Retail - The Regent Street Occupational Market .......................................................... 48
14. Retail Investment Market .............................................................................................. 51
15. Business Analysis ......................................................................................................... 52
16. C&W Trading Projections .............................................................................................. 60
17. Principal Valuation Considerations ............................................................................... 64
18. Valuation Approach and Opinion of Value .................................................................... 67
Appendix A: Photographs ............................................................................. 75
Appendix B – Glossary of Terms and Definitions .......................................... 76
Letter of Consent........................................................................................... 78
CV’s .............................................................................................................. 79
Terms of Engagement ................................................................................... 80
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EXECUTIVE SUMMARY
HOTEL CAFÉ ROYAL, 68 REGENT STREET, LONDON

W1B 4DY
1
This summary is strictly confidential to the addressee. It must not be copied, distributed or considered in
isolation from the full report.
Property Summary
Location The subject property is located in the heart of central London’s West
End, overlooking Regent Street and Piccadilly Circus. This is a
premier location for a luxury hotel, being within walking distance to a
substantial number of attractions including galleries, museums,
theatres, restaurants and high class office and retail occupiers. The
location for retail is also excellent, as the lower end of Regent Street
improves with high class retailers taking up space.
Description The subject property comprises a five-star, full service luxury hotel,
containing 159 guestrooms plus a range of ancillary facilities and
four retail units.
Condition Excellent.
Tenure Long Leasehold with 120 Years unexpired at a fixed (for the term)
passing rent of £50 per annum.
Operating Structure Owner Operated with retail leases on ground floor.
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Trading Performance
Historic Trading (Year Ending December)
Year 2014 2015 Budget 2015 Actual 2016 Budget 2016 Actual
Number of Rooms 159 159 159 159 159

Occupancy Rate 66.00% 68.00% 62.00% 68.00% 70.00%
Average Room Rate 349.00 444.91 399.00 451.00 403.00
RevPAR 230.34 302.54 247.38 306.68 282.10
TOTAL SALES 20,698,570 31,597,869 23,121,043 32,056,531 27,032,715
BEDROOMS
Sales 13,055,995 17,557,630 14,019,770 18,004,345 16,513,086
Departmental Profit 8,345,472 12,640,973 9,472,196 12,643,100 11,080,525
FOOD & BEVERAGE

Food & Beverage Sales 5,938,465 9,603,702 6,515,350 8,792,830 8,300,427
Departmental Profit - 1,983,109 1,626,116 - 938,481 1,584,315 510,979
OTHER
Sales 1,704,110 4,436,537 2,585,923 5,259,356 2,219,202
Departmental Profit - 823,921 430,341 - 588,752 509,833 - 173,479
GROSS OPERATING INCOME 5,538,442 14,697,430 7,944,963 14,737,248 11,418,025
LESS EXPENDITURE
UNDISTRIBUTED COSTS 6,719,367 7,127,822 7,106,615 7,697,445 7,738,906
GROSS OPERATING PROFIT - 1,180,925 7,569,608 838,348 7,039,803 3,679,119
LESS FIXED COSTS

FIXED COSTS 2,502,059 3,165,418 3,146,913 3,194,601 2,050,800
NET OPERATING PROFIT -3,682,984 4,404,190 -2,308,565 3,845,202 1,628,319
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C&W Trading Projections
C&W Projections
Year 2018 2019 2020 2021 2022
Number of Rooms 159 159 159 159 159

Occupancy Rate 70.00% 76.00% 78.00% 80.00% 80.00%
Revenue Per Available Room (RevPAR) 322.00 381.06 418.47 446.37 459.76
TOTAL SALES 31,667,270 36,313,836 39,113,660 41,211,854 42,295,140
BEDROOMS
Sales 18,687,270 22,115,049 24,285,816 25,904,870 26,682,016
Expenses 4,600,000 4,812,651 4,947,659 5,085,432 5,187,141
FOOD & BEVERAGE

Food & Beverage Sales 9,000,000 10,000,000 10,500,000 10,847,308 11,064,254
Other Income / Room Hire - - - - -
Food & Beverage Cost 6,600,000 7,078,217 7,333,778 7,595,537 7,747,448
OTHER
Sales 3,980,000 4,198,786 4,327,844 4,459,676 4,811,744
Expenses 2,845,000 3,001,394 3,093,647 3,187,884 3,251,642
GROSS OPERATING INCOME 17,622,270 21,421,573 23,738,576 25,343,000 26,108,909
UNDISTRIBUTED COSTS 6,750,000 7,036,689 7,225,976 7,419,079 7,567,460
GROSS OPERATING PROFIT 10,872,270 14,384,885 16,512,599 17,923,922 18,541,449
LESS FIXED COSTS

FIXED COSTS 4,359,810 5,171,551 5,489,322 5,730,801 5,873,653
NET OPERATING PROFIT 6,512,460 9,213,334 11,023,278 12,193,121 12,667,796
Market Value and Yields (Hotel)
Valuation date 31 December 2017

Market Value Hotel £250,000,000
Capitalisation Rate (Hotel) 4.25% Discount Rate (Hotel) 6.25%
Net Initial Yield (Hotel) Year One 2.44%,
Year Three 4.13%
Capital expenditure None
deducted from gross
valuation
Liquidity Very Good.

Market Value and Yields (Retail)
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Market Value Hotel £100,000,000

Equivalent Yield 3.25% Initial Yield 1.88%
Market Value

Market Value Hotel & Retail £350,000,000
Key Investment / Market Considerations for Loan Security
Strengths / Opportunities
 Desirable central London location along Regent Street;
 Iconic building with historical ties;
 High quality finish throughout the premises;
 Ample ancillary facilities coupled with distinctive historic guest suites;
 Unique events space located throughout the hotel able to accommodate a variety of
requirements;
 Supplementary income generated from club memberships;
 Excellent transportation links;
 High suite ratio and large room sizes;
 Capture additional market share in the five-star segment through increased marketing
and effort;
 Capture a high proportion of London’s media and creative industries;
 Limited brand standards, therefore able to undertake imaginative marketing selling
opportunities.
Weaknesses / Risks
 Raising brand awareness among the targeted consumer base is an ongoing process
and penetrating that segment has been prolonged;
 The hotel does not benefit from a global brand;
 Lack of reward programme may deter corporate guests;
 High end competition from London’s well established luxury brands;
 Limited visibility from Regent Street;
 Continued new supply entering London in the 5 star segment;
 London visitor numbers decrease;
 Economic and/or political events may reduce demand at certain points in the future;
 High turnover of senior management – a new General Manager is shortly about to join
the hotel.
5
Cushman & Wakefield
43/45 Portman Square
London
W1A 3BG
Tel 020 7935 5000
Fax 020 7152 5360
www.cushmanwakefield.com
Strictly Confidential – For Addressee Only
VALUATION REPORT
To: Barco Investments B.V.

Strawinskylaan 1263
1077 XX Amsterdam
The Netherlands
Attention: Aharon Rabinovitz
Property: Hotel Café Royal, 68 Regent Street, London, W1B 4DY
Report date: 22/02/2018
Valuation date: 31/12/2017
Instructions
Appointment
We are pleased to submit our report and valuation (the “Valuation Report”), which has been
prepared in accordance with the engagement letter entered into between us dated 29 January
2018 (the “Engagement Letter”). This Engagement Letter and the terms set out therein, together
with our Terms of Business, which were sent to you with our Engagement Letter, constitute the
“Engagement”.
Included in the Engagement Letter is the Valuation Services Schedule, a shortened version of
which is included as Appendix 1 ("VSS"). It is essential to understand that the contents of this
Valuation Report are subject to the various matters we have assumed, which are referred to and
confirmed as Assumptions in the Valuation Services Schedule. Unless otherwise defined, all
capitalised terms herein shall be as defined in the Engagement.
We have valued the property interest(s) in the above Property.
Compliance with RICS Valuation – Global Standards

We confirm that the valuation and Valuation Report have been prepared in accordance with the
RICS Valuation – Global Standards which incorporate the international Valuation Standards
(“IVS”) and the RICS UK Valuation Standards (the “RICS Red Book”) edition current at the
Valuation Date. It follows that the valuation is compliant with "IVS".
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Cushman & Wakefield | Barco Investments B.V. Valuation Report
Status of Valuer and Conflicts of Interest

We confirm that all valuers who have contributed to the valuation have complied with the
requirements of PS 1 of the RICS Red Book. We confirm that we have sufficient current
knowledge of the relevant markets, and the skills and understanding to undertake the valuation
competently. We confirm that Ian Thompson has overall responsibility for the valuation and is in
a position to provide an objective and unbiased valuation and is competent to undertake the
valuation. Finally, we confirm that we have undertaken the valuation acting as an External Valuer
as defined in the RICS Red Book.
We confirm that Cushman and Wakefield have previous recent involvement with the property in
that Cushman and Wakefield act as valuer for your lending bank and in previous years for your
financial statement. We confirm that this factor has been discussed with the Client who has
agreed for Cushman and Wakefield to act.
Purpose of Valuation
The purpose of this Valuation Report is for your annual financial statements (the "Purpose of
Valuation"). Our valuations have been undertaken under International Financial Reporting
Standards (IFRS), on the basis of value is Fair Value.
Inspection
The Property was subject to an external inspection, from ground level and an internal inspection.
Accommodation
Source of Floor Areas
We adopted floor areas provided by Barco Investments BV.
Sources of Information
In addition to information established by us, we have relied on the information obtained from you
and others as referred to in this Valuation Report.
We have made the Assumption that the information provided by you and your professional
advisers in respect of the Property we have valued is both full and correct. We have made the
further Assumption that details of all matters relevant to value within your and their collective
knowledge, such as prospective lettings, rent reviews, outstanding requirements under legislation
and planning decisions, have been made available to us, and that such information is up to date.
Basis of valuation
Our opinion of the Fair Value of the Property has been primarily derived using an estimate of the
future potential net income generated by use of the property with reference to comparable recent
market transactions on arm's length terms.
Fair Value - IFRS

The value of the Property has been assessed in accordance with the relevant parts of the current
RICS Red Book. In particular, we have assessed the Fair Value as referred to in VPS4 item 7 of
the RICS Red Book. Under these provisions, the term "Fair Value" means the definition adopted
by the International Accounting Standards Board (“IASB”) in IFRS 13, namely "The price that
would be received to sell an asset, or paid to transfer a liability in an orderly transaction between
market participants at the measurement date".
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Under IFRS 13, The Fair Value Hierarchy, the Property we have valued is designated as Level 3
inputs. Level 3 inputs have been designated as unobservable inputs. Unobservable inputs are
used to measure fair value to the extent that relevant observable inputs are not available, thereby
allowing for situations in which there is little, if any, market activity for the asset or liability at the
measurement date. An entity develops unobservable inputs using the best information available
in the circumstances, which might include the entity's own data, taking into account all information
about market participant assumptions that is reasonably available. [IFRS 13:87-89].
Taxation and costs

We have not made any adjustment to reflect any liability to taxation that may arise on disposal,
nor for any costs associated with disposal incurred by the owner. No allowance has been made
to reflect any liability to repay any government or other grants, taxation allowance or lottery
funding that may arise on disposal.
We have made a deduction to reflect a purchaser's acquisition costs.
Property information
Enquires
We have undertaken and completed the various matters referred to in the “Scope of Services”
section of the VSS.
Save as referred to below, the results of our enquiries and inspections do not contradict the
Assumptions which we have made and are referred to in the VSS.
Valuation
We are of the opinion that the aggregate of the Fair Value(s) of [each of the leasehold interests
in the above Property, subject to the existing tenancies / vacant possession throughout, as at the
Valuation Date subject to the Assumptions and comments in this Report and the Appendices is:
£350,000,000 (Three Hundred and Fifty Million pounds)
Confidentiality
The contents of this Valuation Report and appendices are confidential to you, for your sole use
only and for the Purpose of Valuation as stated.
Such publication or disclosure will not be permitted unless, where relevant, it incorporates
adequate reference to our Terms of Business and the Special Assumptions and/or Departures
from the RICS Red Book referred to herein. For the avoidance of doubt, such approval is required
whether or not Cushman & Wakefield Debenham Tie Leung Limited is referred to by name and
whether or not the contents of our Valuation Report are combined with others.
Disclosure
You must not disclose the contents of this Valuation Report to a third party in any way, including
where we are not referred to by name or if the Valuation Report is to be combined with other
8
reports, documents or information, without first obtaining our written approval to the form and
context of the proposed disclosure in accordance with the terms of the Engagement. We will not
approve any disclosure that does not refer adequately to the terms of the Engagement and any
Special Assumptions or Departures that we have made.
This Valuation Report or any part of it may not be modified, altered (including altering the context
in which the Valuation Report is displayed) or reproduced without our prior written consent. Any
person who breaches this provision shall indemnify us against all claims, costs, losses and
expenses that we may suffer as a result of such breach.
We hereby exclude all liability arising from use of and/or reliance on this Valuation Report by any
person or persons except as otherwise set out in the terms of the Engagement.
Reliance
This Valuation Report may be relied upon only in connection with the Purpose of Valuation stated
and only by:
i. you;
ii. any such other parties who have signed a Reliance Letter.
For the avoidance of doubt, the total aggregate limit of liability specified in the terms of the
Engagement (the “Aggregate Cap”) shall apply in aggregate to (i) you and (ii) any such other
parties who have signed a Reliance Letter. Apportionment of the Aggregate Cap shall be a matter
for you and such other third parties alone.
Signed for and on behalf of Cushman & Wakefield Debenham Tie Leung Limited.
Ian Thompson MRICS John O’Neill MRICS

Partner Partner
RICS Registered Valuer RICS Registered Valuer
+44 (0)20 7152 5006 +44 (0)20 7152 5003
Ian.thompson@cushwake.com John.oneill@cushwake.com
9
Cushman & Wakefield | Barco Investments B.V. Property Record
PROPERTY RECORD
The property was inspected internally and externally from ground level on 13 November by Ian
Thompson MRICS, and Richard Heywood-Farmer MRICS.
1. Location
1.1. Location
General
The subject hotel is located in the heart of England’s capital, London. London is global city
providing leading trends in the arts, fashion, commerce, entertainment, development, professional
services and finance. The city is regarded as the world’s largest financial centre alongside New
York City.
London is a leading global city with strengths in the arts, commerce, education, entertainment,
fashion, finance, healthcare, media, professional services, research and development, tourism
and transport, all contributing to its prominence. It is one of the world’s leading financial centres.
It is the world’s most visited city as measured by international arrivals and has the world’s largest
city airport system measured by passenger traffic as well as the oldest underground railway
network in the world. With 43 universities, it has the largest concentration of higher education
establishments in Europe and in 2012 became the first city to host the modern Summer Olympic
Games three times.
London has a diverse range of people and cultures and more than 300 languages are spoken
within Greater London. Every year millions of tourists visit its World Heritage Sites (the Tower of
London, Kew Gardens, Palace of Westminster/Westminster Abbey and St Margaret’s Church)
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and its various other landmarks (Buckingham Palace, London Eye, Piccadilly Circus, St Paul’s
Cathedral, Tower Bridge or Trafalgar Square among others).
Greater London encompasses a total area of 1,583 square kilometres, Modern London stands on
the Thames, its primary geographical feature a navigable river which crosses the city from the
south-west to the east. Since the Victorian era the Thames has been extensively embanked and
many of its London tributaries now flow underground. The Thames is a tidal river and London is
vulnerable to flooding; with the Thames Barrier built in 1974 this threat has become less imminent
tough.
Greater London has been divided into 32 boroughs in addition to the ancient City of London in
1965. Nevertheless, a set of district names such as Bloomsbury, Mayfair or Marylebone are still
used which often reflect the names of villages that have been absorbed by the sprawl. While the
City of London is the main financial district, the City of Westminster is London’s main
entertainment and shopping district.
The subject property has the following communication characteristics:
By road, the capital is served by a comprehensive public highway network, including the orbital
motorway M25, the M1 (gateway to the north), the M4, M40 and M3. There tends to be local
congestion throughout the day but particularly during peak movements in the morning and
evenings. Regent Street is also served by a number of bus routes connecting the area with the
surrounding districts.
Piccadilly Circus Underground Station (Bakerloo and Piccadilly lines) is approximately 25 yards
to the south east. Oxford Circus Underground Station (Victoria, Central and Bakerloo lines) is also
within close proximity, being approximately 1 km to the north.
Heathrow Airport (LHR) is located 27 km to the west of the subject property. This is London’s
largest international airport. Using public transportation, it is accessible via the Piccadilly Line or
the Heathrow Express from Paddington Railway station.
Gatwick Airport (LGW) is located 58 km to the south of the subject property. Using public
transportation, it is accessible via several railway lines but more conveniently via the Gatwick
Express from Victoria Railway station.
London City Airport (LCY) is located 19 km to the east of the subject property. This airport
operates mainly flights within Europe. Using public transportation, it is accessible via London’s
Tube and DLR network.
Other London Airports such as Luton, Stansted and Southend, are however considerably further
away from the subject property.
Situation
The subject property is located in the heart of central London within the area referred to as
midtown. Please refer to the location map below which shows the position of the hotel within
central London.
The subject property itself is situated on Regent Street, to the east side, at the junction with Air
Street and approximately 25 yards from the junction with Piccadilly Circus. This is an exceptional
location being in the heart of London’s West End. Regent Street is one of the major shopping
streets in London's West End, well known to tourists and Londoners alike, and famous for its
Christmas illuminations. It is named after the Prince Regent (later George IV), and is commonly
associated with the architect John Nash, whose street layout survives today.
The street was completed in 1825 and was an early example of town planning in England, cutting
through the 17th and 18th century street pattern through which it passes. It runs from the Regent's
residence at Carlton House in St James's at the southern end, through Piccadilly Circus and
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Oxford Circus, to All Souls Church. From there Langham Place and Portland Place continue the
route to Regent's Park.
Every building in Regent Street is protected as a Listed Building, at least Grade II status, and
together they form the Regent Street Conservation Area.
To the west of the property are the upmarket residences and boutiques of Mayfair. To the east is
Soho, an area which has undergone a dramatic transformation and now offers a world of culture,
fashion, leading restaurants and bars as well as being the media hub for London.
Also within the immediate vicinity are the famous shopping districts of Bond Street, Mount Street
and Jermyn Street. South of Piccadilly Circus are the exclusive clubs and art galleries of historic
St James’ with Westminster and Buckingham Palace just beyond.
The Royal Academy, the British Museum and the National Gallery are all within walking distance,
as well as Covent Garden and the capital’s great theatres, the National Portrait Gallery, opera
house and art galleries.
Retail Perspective
The retail units sit below the highly prominent Café Royal hotel, located in close proximity to the
junction of Regent Street and Piccadilly Circus. At over, a mile long, Regent Street was developed
in the 1820’s by the Prince Regent as a ceremonial route linking Carlton House with Regents
Park. The Crown Estate has historically owned the entire freehold of the street
Along with Bond Street and Oxford Street, Regent Street is one of the top three shopping streets
in London. In terms of its retail mix it sits between the exclusive luxury brands of Bond Street,
such as Prada and Gucci and the High Street brands of Oxford Street such as Topshop and H&M.
Since 2002, The Crown Estate has spent in excess of £750 million to improve Regent Street with
various initiatives, the most significant being the Quadrant Scheme. This is adjacent to the subject
property and comprises a mixed use development of office, retail and residential with the southern
part of Glasshouse Street pedestrianised to further appeal to shoppers. The scheme was able to
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attract Whole Foods, an American food retailer with a turnover in excess of $9bn USD, along with
other international fashion brands.
In addition, Regent Street has seen the influx of high quality retailers with a tenant mix that now
includes Burberry, Hugo Boss, Hermes, Ralph Lauren, Hamley’s, Louis Vuitton and Apple.
The following bullet points summarise some of our general observations relating to the subject
property’s location:-
 Location – The property is well positioned in an affluent and renowned section of central
London with convenient access to a variety of retail and luxury outlets.
 Strengths – A main strength of the property is its location in a desirable and popular
tourist destination in close proximity to a wide range of central London attractions
including bars, restaurants, and theatres. The property specifications coupled with its
services platform coincide with the demands of a five-star hotel and published reviews of
the hotel tend to be very favourable. The strategic location of the property between
Mayfair and Soho allows it to compete with both say Claridges and Ham Yard
respectively.
 Weaknesses – However, as a luxury hotel, its main weakness is that it is not located
within Mayfair. Piccadilly Circus, whilst a lively area is not as well regarded as say, Mayfair
and some may regard the general area as being a little ‘tacky’, with a high volume of
tourists. There is also a high volume of traffic running past the property on Regent Street
which can often become congested.
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1.2. Demographics and Local Economy

London currently has a population of 8,416,535. Its population peaked at 8,615,245 in 1939
immediately before the outbreak of the Second World War, but had declined to 7,192,091 at the
2001 Census. However, the population then grew by just over a million between the 2001 and
2011 Censuses, to reach 8,173,941 in the latter enumeration. It is the second most populous city
in Europe.
2. Description & Accommodation

2.1. Description
Summary
The hotel has 159 rooms, including six suites, and several outlets for dining and drinks. The hotel
is arranged over two lower levels, ground and seven upper floors. The Grill and Domino rooms,
once frequented by Oscar Wilde and Virginia Woolf, were restored as part of the original
refurbishment, and the Ten Room provides an all-day brassiere-style eatery.
The hotel also houses the Akasha Holistic Wellbeing Center, which provides a lap pool, a
hammam, a yoga studio, spa treatments, and an organic bar. The property is directly operated by
Set Hotels, an independent luxury collection of hotels in Amsterdam and Paris.
The main entrance is situated centrally from Regent Street. To the northern elevation, the property
oversails the access-way that leads to Glasshouse Street (via Air Street). There is an additional
entrance from Air Street which serves Ten Room restaurant.
The surrounding occupiers include a range of retail and office premises.
The subject hotel is accessed from Regent Street, via a revolving doorway leading into an internal
lobby. The lobby area has marble flooring and decorative finishes to the walls and ceilings.
Beyond the lobby area, to one side, is a centralised staircase with decorative iron balustrades,
providing access to the upper floors, as well as the guest reception area.
The guest reception area comprises an enclosed rectangular area, with stone flooring and wood
effect panel walls. The reception desk has timber elevations and is presented in a clean and
minimal way. Beyond the reception area is the concierge desk, which is finished to a similar high
quality, yet minimal standard.
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2.2. Accommodation
Guestrooms
The following table summarises the subject property’s guestroom facilities, based on information
provided by the borrower.
Category Unit Count Area (sq m)
Portland Rooms 19 30
Mansard Rooms 27 30
Portland Deluxe 49 37
Mansard Deluxe Rooms 9 36
Junior Suite 30 51
Westminster Suite 7 61
Glasshouse Suite 5 65
Regent Suite 7 90
Marquis 1 81
Club 1 105
Tudor 1 106
Celestine 1 178
Empire 1 212
Dome 1 121
Total 159 7,232
The property provides 14 room categories varying in size from 30 m² to 212 m². A large proportion
of these are suites and account for almost 35% of the total room mix. This suite ratio, from our
research is appropriate for a leading luxury hotel within London.
15
Furthermore, the subject hotel offers some of the largest standard rooms and signature rooms
within the London market. These statistics are advantageous as a high suite ratio will assist in
driving average room rate and will appeal to guests from the high spending Middle Eastern and
BRIC economies.
From the sample of guestrooms we inspected, we confirm that the rooms are finished to a high
specification; incorporating solid oak flooring, plastered walls, part finished in a Portland stone
effect and plastered and painted ceilings.
All the guestrooms have a large lobby area incorporating a range of fitted wardrobes.
All rooms include the following details:
 Leading design by David Chipperfield
 Complimentary high speed wireless internet
 Flat-screen TV and HD entertainment, digital cable and movies on demand
 Mirror TV in all guest bathrooms
 Mini-bar
 Nespresso Coffee machine, incorporating tea making facilities provided only to

the hotel
 24 hour room & butler service
 Micro cotton towels and Floris toiletries
 Personal concierge service
The guest bathrooms are fully tiled in solid white carrara marble, including the door interiors and
incorporate a deep marble bathtub, formed from a solid block of marble and separate shower
room with rain head shower. The property also provides a range of contemporary and historic
suites which are also finished to an identical standard except they provide a separate seating
area and an additional swivel flat screen TV.
Food & Beverage

We summarise below the principle food and beverage outlets available at the hotel.
Room Capacity
Ten room 100
Green Bar 55
Grill & Domino rooms 95
Café Royal Club 174
Café 1865 at Café Royal 40
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Ten Room: The Ten room benefits from a separate access from Air Street as well as from the
reception/concierge area. The restaurant is rectangular in shape and is shielded from Air Street
access via a series of marble columns. The restaurant area is completed in an ‘art deco’ style
with stone flooring and plastered and painted walls. The ceiling is double height, providing an
atrium to the above first floor level, which is surrounded by a balcony on all sides. Customer
seating on the ground floor is for approximately 100, at a mix of leather covered chairs and
banquette seating. Lighting is provided by a variety of ceiling mounted lights. Ten Room provides
an all-day brassiere-style restaurant.
Green Bar: Adjoining Ten Room, and benefiting from frontages to both Air Street and Glasshouse
Street is The Bar. The Bar is triangular in shape and finished in a contemporary style, with stone
flooring, plastered and painted walls and ceiling. Customer seating is for approximately 55 at a
mix of leather covered chairs and banquette style seats. To the centre is a dramatic metal clad
bar servery which provides an extensive range of cocktails, wines and spirits as well as light
snacks.
Lighting is provided by hanging pendants, strip lights and ceiling mounted spot lights as well as
benefiting from ample levels of natural daylight from the two street frontages.
The Oscar Wilde: Located at ground floor and accessed via the hotel lobby area is the
champagne bar - The Grill Room. The accommodation is rectangular and provides seating for
approximately 35 covers. The room is listed and is finished to the highest of standards with timber
flooring and the walls are a mix of gold-leaf gilted mirrors and intricate detailed plasterwork. The
detailing follows onto the ceiling, which incorporates numerous historic decorative features in gold
leaf mounts. Customer seating is at a mix of leather covered chairs, in different styles.
The Domino Room: At first floor level and situated above The Grill Room is the hotel’s guests
and club member’s signature restaurant, ‘The Domino Room’. The accommodation is finished to
a high standard, retaining all the original features including decorative plaster work to the walls
and ceilings. Customer seating is at a mix of leather and material covered chairs for approximately
60 guests.
Café Royal Club: Located on the first floor, the member’s club comprises a lounge area
overlooking the Ten Room (seating for 40), a Gentleman’s bar (seating for 40), a private dining
area (seating for 14) and a board room which can be converted into a private screening room
(seating for 80).
All areas are finished to a high standard and within a similar style to the remainder of the hotel.
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Meeting Rooms
Please find below a summary schedule setting out the capacity of the meeting and banqueting
facilities.
Room Capacity Area (Sq m)
Pompadour Ballroom 170 176
Queensberry Suite 170 141
Soho 42 59
Mayfair 40 58
Nicols 14 32
Nash 14 26
The Studio 40 16
Total 490 508
The meeting and event space provides a total of seven rooms and is situated at first and second
floor level and provides modern accommodation. The Queensberry Suite, which fronts Regent
Street, has fumed oak wall and ceiling panels with concealed, state-of-the-art technology
equipment. The room provides a maximum capacity of 180 in reception style.
Leisure Club
The Akasha Holistic Spa is located at lower floor level, accessed either via the customer lifts or
stairway from the lobby. The spa is finished in a contemporary style, providing approximately
1,200 sq m of leisure space. The area is split into four key areas, which we understand represent
the four elements – earth, water, air and fire.
Earth incorporates the lounge area, which provides a relaxation area for guests and serves
organic light snacks and fresh juices. Water is represented by the main spa, featuring sound,
music and aroma therapies, an exclusive Watsu pool and special hammam treatments. Fire
represents the gym, fitted with up to date equipment including Life Fitness® equipment and a
Kinesis Personal from TechnoGym; ‘Air’ is a calming, peaceful space for Pilates, yoga and tai-
chi. The lap pool measures 19m in length.
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Back of House Accommodation

The back of house accommodation is mostly arranged at basement level and occupies a vast
space with storage, offices, staff changing, plant areas and kitchens.
We have assumed that the subject hotel is connected to mains electricity, gas, water and
drainage. We further assume that the necessary plant/transformers (as well as back-up diesel
generators) are in place to serve the power needs of the occupier.
The building has the following items of major plant:

 10 Passenger and service Lifts
 Hot water and heating is provided by local utilities
 Air conditioning throughout the public and guestroom areas
Retail Units
The ground floor and basement of the subject building provides access and reception for the
hotel, whilst the remainder provides three retail units as numbered below. In addition, we have
been requested to include in our valuation the corner unit marked as “Hotel Tea-Room” as retail
accommodation; this presently operates as part of the hotel and is known as Café 1865, which
we will refer to as Unit 4.
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Unit  Details
Unit 1 – Nespresso UK Limited This is let to Nespresso UK Limited and

comprises a large ground floor unit with a
frontage to both Regent Street and Glasshouse
Street. The tenant has fitted out the
accommodation to a very high standard
including air conditioning. The sales area has
been left largely open plan, whilst staff facilities
are partitioned behind. In addition, there is
basement storage which has its own access
from Glasshouse Street.
Unit 2 – Lotus Cars Limited  This is let to Lotus Cars Limited and
comprises a slightly smaller area than Unit 1
but also has a frontage to both Regent Street
and Glasshouse Street. The sales layout is
more cellular with different rooms being
created in addition to changing areas. The
standard of fit out is again of the highest order
including air conditioning. The space is
double height at the Regent Street frontage
but towards the rear (Glasshouse Street) is
single height as a mezzanine has been
installed above which provides staff offices
and facilities. In addition, there is a small area
of basement storage.
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Unit 3 – Wolford London Limited  This is let to high class lingerie retailer
Wolford London Ltd and comprises a small
“lock-up” shop on ground floor only with a
frontage to Regent Street. It has been fitted
out by the tenant to a high standard including
air conditioning. There is no on site storage.
Unit 4 – Café 1865 at Café Royal  The fourth retail unit is part of the hotel and
branded as “Café 1865 at Café Royal”. The
unit has a long frontage to Regent Street and
return frontage to Air Street giving good
visibility from the north in particular. The area
is rectangular and finished in yellow marble
floor and wall cladding. It provides a high-
quality pastry and coffee house with seating
for approximately 40 guests.
3. Structural Condition and Repair

The Cushman and Wakefield Building Surveying team have prepared a Building Survey of the
Property. We summarise below their findings taken from their report dated November 2017:
 No significant sign of distortion or displacement which would be symptomatic of any
failure of the foundations, main structural frame or the structural floors of the premises.
 The external building fabric was found in fair to good condition overall. Items of note
include the likely medium term requirement for stone cleaning, albeit this is a subjective
issue.
 The internal building fabric was found in fair to good condition overall. No significant items
of note were observed. Less significant wants of repair relating various elements included
minor isolated stains from isolated water penetration and minor wear & tear to finishes in
back-of-house areas.
 The MEP services and lift installations were generally found to be in good condition
overall as expected considering the large majority of MEP plant was replaced with new
during the 2009-2012 refurbishment.
 The electrical systems are all in fair condition and it is apparent are subject to adequate
routine maintenance. Certification for the fire alarm and emergency lighting systems were
reviewed on site.
 The electrical wiring systems are now five years old and will require statutory testing to
be carried out imminently.
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 The mechanical ventilation systems are all in fair condition and it is apparent are subject
to adequate routine maintenance. Certification for ductwork cleanliness and water
treatment regime were reviewed on site.
 The mechanical ventilation systems located on the roof are likely to be obstructed by
vegetation unless the overgrown green roof is kept in check.
 The air conditioning systems are approaching five years old and it will be necessary to
undertake a statutory air conditioning inspection (ACI) imminently. The inspection needs
to be uploaded onto the government non-domestic energy assessment portal.
Our valuation otherwise assumes that the hotel has been constructed with good quality materials,
workmanship and conforms to all building, energy efficiency and health and safety legislation.
We were not informed at the date of inspection as to the presence of any deleterious materials.
Where any such materials are found to be present within the building fabric, we have assumed
that they are appropriately contained.
Overview
a. Any parts of the property NOT inspected? (save those areas already excluded No
by the terms of this instruction)
b. Any disrepair or structural defects likely to have an adverse impact on value No

identified or suspected?
c. Could the borrower be liable for the cost of remedial works? Yes
d. Any deleterious materials identified or suspected? No
e. Any areas of concern where further investigations are recommended? No
For the purpose of the valuation, in the absence of a full structural survey, we have assumed that
the Hotel is in good structural condition. We did not notice any obvious signs of defect during the
course of our inspection. We assume that the Hotel has been constructed with good quality
materials, workmanship and conforms to all building, energy efficiency and health and safety
legislation.
Remaining Useful Economic Life

We consider the building has a remaining useful economic life, provided it is properly maintained,
of at least 25 years.
Capital Expenditure
As the hotel underwent a significant refurbishment within the past several years there is no
obvious requirement to commit any capital expenditure to the hotel. However, the new
management have identified that part of the problem with the Food and Beverage areas is
currently down to the layout and use of operation and so there are plans to implement the
following:
- New hotel reception to be created in the current Ten Room which would in our view
significantly improve the current sense of arrival.
- Studio and Gallery to become one single dining outlet (110 covers), replacing the loss-making
members Club. This space will feature a show kitchen which will be visible as you enter this
space at first floor level.
- Private dining space overlooking Regent Street and Ayre Street.
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Opportunities for extra revenue:

- Move afternoon teas from the Oscar Wilde bar to the Gallery and Studio (bigger capacity).
Increase price for afternoon teas over the weekend.
- Use the Oscar Wilde bar as a lounge bar.
- Make the Green bar “a destination on its own”.
- Make Domino “the hotel’s restaurant”, i.e. fish grill, shell fish etc (beyond the dated concept of
“fine dining”)
We understand that the above works are forecast to cost in the region of £4,500,000. It is our
view that the reconfiguration of the ground and first floor space could be achieved within a lower
budget which would then be most likely funded from the FF&E reserve.
We would consider that the above cap-ex to reconfigure the internal public areas and current and
anticipated works will be pulled from the FF&E reserve over the next several years, as well as in
some cases from the annual repairs and maintenance allowance.
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4. Site
Boundary
Ground Conditions
We are not aware of any adverse ground conditions affecting the property.
Access
The hotel can be accessed from Regent Street.
24
Flooding Risk
We understand the property is not in, or near to, a sea or river floodplain. The site is considered
to have a low likelihood of flooding.
The Environment Agency plan is shown below with the approximate position of the subject
property is shown by a red dot.
The environment agency map distinguishes between the different levels of flooding risk as follows:
Purple (High) – The Purple shaded area indicates significant risk of flooding – i.e. ‘High’
means that each year, this area has a chance of flooding of greater than 1 in 30 (3.3).
Dark Blue (Medium) – The light blue shaded area indicates moderate risk of flooding i.e.
‘Medium’ means that each year, this area has a chance of flooding of between 1 in 100
(1%) and 1 in 30 (3.3%).
Mid Blue (Low) – The mid blue shaded area indicates a low risk of flooding – i.e. ‘Low’
means that each year, this area has a chance of flooding of between 1 in 1,000 (0.1%)
and 1 in 100 (1%).
Light Blue (Very Low) – The light blue shaded area indicates a very low risk of flooding
– i.e. ‘Very low’ means that each year, this area has a chance of flooding of less than 1 in
1,000 (0.1%).
The site is considered to have a very low likelihood of flooding. It should however be noted that
the property is located within the River Thames basin. However, the Thames Barrier flood
protection system has protected the capital from major flooding since its development. That is not
to say however that the city remains impenetrable to flooding.
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5. Environmental
5.1. Environmental Considerations
We understand that:
 The property not in or near to a groundwater protection zone.
 We are not aware of any potential sources of contamination to the property, either current or
historic, and we found nothing during our inspection to give cause for concern.
 In view of the characteristics and history of the property we would not expect there to be any
outstanding environmental issues.
In the absence of information to the contrary and an indication of cost, we have prepared our
valuation on the basis that the property does not suffer from contamination. Should this
assumption prove to be incorrect then the value of the property and its marketability are likely to
be affected.
5.2. Environmental Performance

Energy Performance Certificate
Energy Performance Certificates (EPCs) must be produced for all properties before being
marketed for sale or lease.
Minimum Energy Efficiency Standards (MEES) Regulation are set to come into force in April 2018.
The regulations prohibit the leasing out of residential or business premises which do not have a
rating of ‘E’ or above.
From April 2020 all privately rented residential property will be affected, followed in April 2023 by
all privately rented commercial property. In both cases, properties will be affected even where a
lease is already in place and a property is occupied by a tenant.
There are important points that lenders should be aware of when assessing an EPC:
 The quality of an EPC can vary significantly due to the lack of regulation of assessors. The
industry is improving regulation, however there are a number poor quality EPCs in the
market.
 Accuracy can also vary significantly due to the calculation methodology. When there is a
lack of information an assessor with make default assumptions, which can lead to an
inaccurate default certificate. There have also been instances when the EPC has been
registered against the incorrect property address.
 The age of an EPC is an important consideration because its accuracy will degrade over
time. EPCs are valid for a period of 10 years. However since their inception in 2008 there
have been several changes to the way EPCs are calculated, which has improved their
overall quality. A major reason for these changes was the update to Part L (Conservation
of Fuel and Power) of the Building Regulations in 2011, which improved the calculation
methodology behind EPC assessments. Therefore EPC’s carried out prior to this date are
likely to be inaccurate and produce a different rating if the property were to be reassessed.
Where the property’s EPC rating falls within E, F or G, we would recommend that you ensure an
‘Action Plan’ is put in place by the Borrower. An ‘Action Plan’ would set out how the Borrower is
26
going to ensure compliance with MEES regulations through an energy efficiency improvement
programme. The process would highlight opportunities to implement works during void periods or
lease breaks, or as part of the on-going maintenance and plant renewal programme.
We are not able to comment on the quality or accuracy of a specific EPC and we would advise
undertaking your own quality assurance measures. We are not qualified to make an assessment
of cost associated with improving non-compliant properties.
We have not been provided with or been able to recover an EPC for the building and we are not
qualified to estimate its energy rating (which must be carried out by a BRE-approved energy
assessor). We have therefore assumed that the property’s energy performance rating will be
comparable to its peers and will not have an adverse impact on value.
6. Statutory Matters
Town Planning
Overview
a. Local planning authority City of Westminster
b. Assumed current lawful planning use Hotel and premises
c. Listed Building status? Yes – Grade II
d. Conservation Area? Yes
e. Outstanding applications? None
Planning Policy Framework

In March 2012 the National Planning Policy Framework (NPPF) for England replaced all Planning
Policy Statements and Guidance Notes. The NPPF is intended to make the planning system less
complex and centralised, and more accessible, with specific aims to protect the environment and
promote sustainable growth. Planning decisions will now be taken locally unless there is good
reason for the Government to intervene, such as nationally important infrastructure projects.
We have not been provided with documentation regarding town planning and building consent
but understand that all necessary consents pertaining to the existing use have been approved,
and we have valued on this basis. It should be pointed out that we are not planning consultants
and should the Addressee require additional information in this regard, they should consult a
specialised firm of planning consultants.
Our valuation assumes that the owner will obtain any necessary landlords consent to undertake
the improvements to the ground and first floor public areas. We have been advised however that
this work does not require planning consent.
Our valuation assumes that the Hotel has the benefit of all trading licences and operational
certificates required for its operation.
The hotel includes four retail units of which the hotel’s management have supplied us with lease
information.
27
Fire Risk Assessment

The Regulatory Reform (Fire Safety) Order 2005 came into force in England and Wales in October
2006, replacing the requirement for fire certificates with Risk Assessments. The new law places
the responsibility on the employer or “responsible person” for a particular building or premises.
He or she is required to assess the risk of fire and take steps to reduce them. The findings of any
risk assessment must be recorded in writing. The onus is on that person to ensure the building is
compliant. The fire authority is still permitted to inspect premises to ensure adequate fire
precautions are in place, and hotels, being places where there is a significant degree of public
access, will come under particularly close scrutiny.
We have been informed by the owner that a Risk Assessment has been undertaken.
Registration and Licencing

We are advised that the hotel has the benefit of a Premises Licence, as well as Civil Ceremonies
Licence. We have not had sight of the licences however our valuation assumes that the
appropriate licenses are in place and if this should prove otherwise then our valuation may be
negatively affected.
The Equality Act

The Equality Act 2010 came into force in October 2010, primarily to consolidate a number of anti-
discrimination Acts and Regulations, including the Disability Discrimination Act 1995. The Act
places an obligation on landlords to make reasonable adjustments where a disabled person is
placed at a substantial disadvantage in comparison to a non-disabled person, although the Act
does not require the alteration or removal of a physical feature. The obligation will only take effect
when a request is made by a disabled tenant or occupier.
Hotels generally require (with few exceptions) to be accessible for wheelchair bound guests
(including access from the street into the hotel, and to all public areas) and to have a reasonable
proportion of guest bedrooms providing adequate accommodation for disabled guests. Adequate
accommodation could include wider doorways (to allow easy ingress and egress of wheelchairs),
alarm-light (to awake the hard of hearing in the event of a fire), and specially adapted bathrooms
(with seats in the showers and alarm cords).
Some hotels will need physical modifications for the occupier to be able to comply with the Act.
Often these will be minor, but if major modifications are required (for example to provide
wheelchair access), these could prove costly. A property without the necessary modifications
may also be harder to sell or let.
During our valuation inspection we formed the impression that the building would comply with the
Act; therefore, we have not allowed for any costs of compliance.
Other Statutory Matters

Under the Food Safety Act 1990 businesses must have food safety assessments and put
adequate controls in place to prevent problems occurring. There are various sanctions that can
be imposed on businesses that fail to comply with the law, ranging from written warnings to legal
notices and prosecution. Businesses which are found to pose an imminent risk to health can be
closed immediately. We have assumed the property is registered under the Act and that there
are no outstanding matters.
We have assumed the property is compliant with the Control of Asbestos Regulations 2006,
whereby there is a legal requirement to manage any asbestos containing material present.
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We are not aware of any road scheme or compulsory purchase order that could affect the
property.
7. Taxation
Business Rates
Current applicable UBR £0.497 2016 / 17
We understand the property is assessed as a hotel and premises with a rateable value of
£3,345,000 as of 1 April 2017. The hotels previous assessment was £2,680,000.
8. Tenure and Occupational Interests

Title
The below table summarises the tenure, and our relevant investigations, of the property:
Overview
Type of tenure Long Leasehold

Title no(s) NGL944027
Source of Report on Title Not Provided
Any material encumbrances or unduly None
onerous / unusual easements, restrictions,
outgoings or conditions?
Any title characteristics likely to have an None

adverse impact on value, either now or over
the proposed loan term?
We have not examined nor had access to all the deeds or other documents relating to title/tenure
under which the Property is held. We should emphasise, however, that the interpretation of the
documents of title (including relevant deeds and planning consents) is the responsibility of your
legal adviser and we therefore recommend that they should be asked to verify the current position.
We have been not provided with a copy of the Land Registry Extract relating to the Property.
We understand that the Hotel and retail units are held long leasehold. We have been provided
with a copy of the lease dated 2 July 2014 between (1) Her Majesty the Queen (2) The Crown
Estate Commissioners (3) Barco Investments BV and (4) Alrov Properties and Lodgings. The
term extends to 125 years with a fixed rent payable of £50 per annum.
Headlease Summary
Demise Quadrant 1, 50 to 72 (even) Regent Street, 1 to 23 (odd)

Glasshouse Street and 6 to 10 (even) Air Street, London W1
Landlord The Crown Estate Commissioners
Tenant Barco Investments BV
Guarantor Alrov Properties & Lodgings Ltd
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Headlease Summary
Term 123 Years expiring December 2137 (120 years unexpired)

Tenant option to extend? No
Break options None
Current rent £50 per annum
Premium paid (if known) £88,925,000
Rent review provisions None
Repair Tenant to keep the property in good and substantial repair and
decorative order and at all times keep clean and tidy and to clean
all outside stone or brickwork every 7 years
Insurance Tenant to insure
User Use as a high class 5 star hotel under C1 of the Use Classes
Order as well as A3 and private members club and retail Class
A1
Alienation Tenant not to assign part only.
Tenant not to assign whole without the written consent of the
landlord.
Tenant not to underlet whole or part but excludes the spa and/or
restaurant.
Alterations Tenant not to make any additions or alterations to the property
without written consent
Management Contract Tenant not to enter into a Management Contract without prior
consent of landlord
Forfeiture Landlord may re-enter property if:
 Rent remains unpaid for 21 days;
 Tenant or guarantor does not comply with the lease
covenants;
 Change of control not approved by landlord.
Landlord is to provide the tenant, guarantor or mortgagee with 2
month’s written notice of intention and provide them with a
reasonable period of time to remedy.
We consider the subject lease to be comparable with similar agreements and the terms and
conditions would in our view be acceptable to a prospective purchaser.
The lease of the hotel building also contains standard forfeiture provisions in the event of default.
There is a risk that in the event the tenant defaulted and the landlord was able to bring a
successful action for forfeiture the Bank would have no security. Therefore, it would be beneficial
for the Bank to have rights of notification in the event the landlord were to serve notice to forfeit
the lease.
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9. Operational Structure
The hotel is owner operated, independent of any formal brand or affiliation. The hotel includes
four retail units which are all let to third party tenants.
9.1. Hotel Operator/ Brand

The subject hotel is owned by Alrov Properties & Lodging and operated by The Set Hotel Group.
The Set includes The Conservatorium, Amsterdam (opened December 2011) and Hotel Lutetia,
Paris (currently closed for extensive renovation). Alrov Luxury Hotels provides hotels of the
highest quality, placing an emphasis on providing a personal service and being housed within
iconic buildings. The group currently has two existing hotels in Israel as well as those listed earlier.
We are advised the group has ambitions to expand into further key city locations, therefore
building on the brand awareness within the international markets.
10. Hotel Operating Market

10.1. General Economic Overview
The UK economy held up well in the six months after the EU referendum, particularly as regards
consumer spending. But growth then slowed markedly in the first quarter of 2017 as both
consumer spending and services growth moderated. A key factor behind this recent moderation
has been an increase in the rate of consumer price inflation (CPI) from around zero on average
in 2015 to 2.6% in the year to July 2017, as global commodity prices have picked up somewhat
from lows in early 2016, and the effects of the weak pound after the Brexit vote have fed through
supply chains. Higher inflation has squeezed real household incomes and, despite a falling
savings ratio, this has taken the edge off consumer-led growth.
On the more positive side, investment has held up reasonably well since the Brexit vote, while
exports should be boosted by an upturn in global growth, notably in the Eurozone. The weaker
pound, although bad for UK consumers, has been helpful to exporters and inbound tourism.
A broad pattern of gradually slowing growth in 2017–18 is common to most forecasts at present.
Consumer spending growth is expected to moderate in 2017–18 as inflation bites into real
spending power. So far, consumers have offset this in part through higher borrowing, but there
are limits to how much further this can go with the household savings ratio having already fallen
to very low levels. On the other hand, the weak pound should also have some offsetting benefits
for net exports as will a somewhat stronger global economy.
Brexit-related uncertainty may hold back business investment, but this should be partly offset by
planned rises in public investment (as announced in the Autumn Statement last November). Fiscal
policy could also be further relaxed in the 2017 Autumn Budget.
London is expected to continue to lead the regional growth rankings in 2017, expanding by around
1.8%, although this is down from around 2.4% in 2016. Most other regions are projected to
expand at a rate at or below the UK average of 1.5% in 2017, while Northern Ireland is predicted
to lag behind somewhat with growth of around 1%.
Growth is expected to decelerate slightly further in most regions during 2018, as the UK continues
to feel the effects of Brexit-related uncertainty.
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Source ONS
The UK's key inflation rate hit its highest for more than five years in September 2017, driven up
by increases in transport and food prices. The Consumer Prices Index (CPI) climbed to 3%, a
level it last reached in April 2012, and up from 2.9% in August. The pick-up in inflation raises the
likelihood of an increase in interest rates - currently 0.25% - in November 2017.
The figures are significant because state pension payments from April 2018 will rise in line with
September's CPI. Under the "triple lock" guarantee, the basic state pension rises by a rate equal
to September's CPI rate, earnings growth or 2.5%, whichever is the greatest.
The fall in the pound since last year's Brexit vote has been one factor behind the rise in the
inflation rate, as the cost of imported goods has risen. Inflation has hit a five year high and is now
0.9% above the rate of wage growth - meaning that the incomes squeeze is becoming tighter -
and if you are employed in the public sector - where pay rises are capped at 1% - or rely on
benefits - which are frozen - that squeeze is even tighter.
With weak economic growth figures and uncertainty over the Brexit process, the Bank of
England's decision on whether to raise interest rates in November is finely balanced. Yes, "price
stability" is the main purpose of the Bank of England's Monetary Policy Committee, which makes
the decision, but many believe that inflation may now have peaked as the effects of sterling's
depreciation following the referendum dissipate.
An interest rate rise now, which increases prices for millions of mortgage holders and could
dampen economic activity, could be just the medicine the economy doesn't need.
10.2. London Hotel Operating Market

Trading Performance
Hotel trading performance is generally cyclical in nature influenced by wider economic factors and
as a result has generally followed changes in GDP although markets over the last 20 years have
been impacted by short term shocks.
32
London is one of the world’s most popular tourist destinations as well has being one of the most
recognised business centres and with such global appeal generates strong levels of
accommodation demand helping to mitigate against the impacts of economic decline or market
shocks.
The graph below shows the key performance indicators for rooms revenue for the London market
over the course of the last 10 years based on statistics produced by Hotstats:
Following a continual rise between 2012 and 2015, occupancy has since fallen from a peak of
82.5% to around 80.7% in 2016. ADR has shown strong growth since 2009 albeit the rate of
growth had started to slow due to the decline in accommodation demand. This however masks
the improvement in both occupancy and ADR witnessed during the last quarter of 2016.
The table below shows the performance of the London market for the year to August 2017
compared with the previous year:
UK Regions - YTD Aug-17 Aug-16 Var Trend
Occupancy 76.4% 74.9% 1.5
Average Room Rate £85.55 £82.95 3.1%
Room RevPAR £65.39 £62.14 5.2%
TrevPAR £113.05 £108.88 3.8%
Payroll % 31.2% 31.5% 0.1
GOP PAR £35.13 £33.60 4.6%
Source: HotStats - UK Chain Hotel Market Review
Despite concerns about the future performance of the UK economy and the uncertainty around
Brexit, London continues to perform well.
As a truly global city, the devaluation of sterling following the EU referendum has influenced
trading performance with the UK now comparatively cheaper for overseas visitors and conversely
foreign holidays more expensive for UK citizens. As a result, London has been boosted by an
increase in international visitors particularly from the US and China.
Occupancy was up one and a half percentage points for the year to August 2017 with ADR
increasing by 3.1%. As a result, the London market reported RevPAR growth of 5.2%. As a
result of the improvement in top line performance, profitability has improved increasing by 4.6%
on the same period in the previous year.
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Performance Outlook
PWC are forecasting relatively stable levels of occupancy during 2017 and 2018 with the London
market continuing to record levels in excess of 80%, near to its natural ceiling. For 2017, PWC
are forecasting ADR growth of 2.5% and 2% in 2018 resulting in forecast RevPAR growth of 3.3%
and 2.5% in each year respectively. This to a degree will be influenced by economic conditions,
the impacts of any potential Brexit deal and whether the pound continues to remain weak relative
to the dollar and euro.
There are however a number of factors on the horizon that may have an impact on operating
expenses throughout 2017 and thus profitability.
With the prospect of higher levels of inflation, it is likely that the cost of commodity prices will
increase through the year particularly food costs, which could impact departmental expenses.
Wage costs also increased in April 2017 with the National Living Wage (NLW), which was
introduced in April 2016 for all working people aged 25, increasing from £7.20 to £7.50. In addition
the National Minimum Wage (NMW), which applies to workers between the age of 16-24,
increased by five pence for those aged between 16 and 20 and ten pence for those aged between
21 and 25.
It is estimated that the Tourism, Hospitality and Leisure sector has the highest proportion of jobs
paying the minimum wage of any sector, at around 30% of the total (Source: Deutsche Bank
Market Research). With wages typically representing between a quarter and a third of operating
costs in businesses with already low operating margins, the increase in the rates of both the NMW
and NLW is likely to have an impact.
This increase may also bring about inflationary impacts on the remaining employee structure.
The rising minimum wage will decrease or eradicate the pay gap between those on the minimum
wage and their supervisors, meaning a full re-evaluation of staff cost structures may be required
for larger organisations.
Following the 2017 rating revaluation, many hotels have seen a change in their business from
April. From this date the rates assessment on commercial property will be based on a valuation
date of 1 April 2015 as opposed to 2008 under the previous list. As the rateable value of a hotel
is based on both operating performance and property rental values there has been significant
changes across the sector.
The date of the previous valuation saw very different market conditions with downward pressures
from the global financial crisis and economic recession starting to take hold in the capital. By
contrast 2015 had seen several years of strong trading conditions and higher property values. As
a result, many hotels in the capital have seen rating assessments rise significantly.
In order to phase in the changes to the rates payable, transitional arrangements are in place over
the five-year period. For large properties with a rateable value in excess of £100,000 increases
will be capped at 42% in 2017/18 and 32% in 2018/19, which will still see a significant increase
in liability. For those large properties seeing a reduction in rateable value, decreases will be
limited to just 4.1% in 2017/18 meaning there will be limited reductions during the first year of the
new list.
Supply
The UK market currently comprises approximately 14,450 establishments providing over 637,000
bedrooms with over 146,000 in London, which accounts for around 23% of the total bedrooms in
the UK. The graph below shows supply in London by sector:
34
There has been a seismic shift in the structure of the market with the growth of the branded sector
although there does remain a large number of smaller lower quality private hotels in London. The
budget sector has also experienced considerable growth over the past 20 years with 46% of the
new supply in the last five years being in this sector. As a result, budget hotels now account for
21% of the bedroom supply in the capital.
The London market has remained popular for new developments as hotels have been viable
propositions due to the strong trading environment and the high capital values that completed
hotels in the capital are able to achieve. Those boroughs that have experienced the strongest
supply growth over the past five have been Hackney, Southwark and the City of London. Other
boroughs that have seen significant growth have included Newham and Tower Hamlets.
The graph below shows the number of new bedrooms added to the market since 2012 and the
active pipeline of new supply up to 2019:
There is an active pipeline of 7,061 new bedrooms to be added to the market in 2017 with a
further 6,218 to be added in 2018 representing supply growth of 4.8% and 4% in each of the next
two years. This growth is at its highest level since 2012 when the market saw a number of new
openings in the run up to the Olympics.
In addition to the active pipeline, AM:PM Hotels have also identified approximately 30,000 new
bedrooms, which are classed as either on hold or speculative and at this stage it remains to be
seen how many of these come to fruition.
Looking at the proposed supply in detail the graph below shows the active pipeline by London
Borough:
35
The highest number of new bedrooms entering the market are within the City of Westminster
although this is the largest and most established hotel market in London with the proposed new
supply only representing growth of 7%. The City of London will see 1,000 new bedrooms added
in 2017 with the active supply over the next three years representing growth of 33%. The London
Borough of Hillingdon, which includes the Heathrow market, has 1,767 new bedrooms being
added in 2018 with the active supply representing growth of 25%.
In addition to these established markets Hackney is expected to see supply growth of 31% and
Tower Hamlets 25%. The active supply in a number of the outer Boroughs such as Haringey and
Wandsworth also represents significant supply growth. Being less established than those more
central locations, this level of growth may result in more challenging trading environments in these
specific areas.
11. Hotel Investment Market

There is a strong correlation between hotel trading performance and investment activity as
illustrated by the graph below showing transaction volumes compared to RevPAR growth:
Deal RevPAR Growth (%)

10 10.00%
9 8.00%
8 6.00%
7 4.00%
6 2.00%
5 0.00%
4 -2.00%
3 -4.00%
2 -6.00%
1 -8.00%
0 -10.00%
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
Portfolio Single Asset Loan Total RerPAR Growth
36
From a low in 2009, transactional volumes grew substantially through to 2015 with volumes in
both 2014 and 2015 exceeding the peak of the last cycle. Whilst volumes were boosted
through the sale of loan packages as opposed to property sales, the primary reason for the
increase was the number of portfolio sales of largely regional assets that occurred reaching an
unprecedented level in 2015. As a result, transactional volumes reached just over £8.1 billion
in 2015 marking an increase of over 30% on the previous year and significantly higher than at
any point in the previous 10 years.
Details of those portfolio transactions that occurred in 2014 and 2015 are detailed in the table
below:
Portfolio Date Price Rooms Price per Purchaser

Room
LRG 3 (Ribbon) Dec-15 £1,000,000,000 5,943 £168,265 Apollo Global Real Estate
Kew Green Hotels Aug-15 £400,000,000 5,179 £77,235 HK CTS Hotels
Jupiter Hotels Aug-15 £160,000,000 2,860 £55,944 TIESCO and Fico

Corporation (Thai)
Malmaison Hotel du Vin Jun-15 £363,000,000 2,443 £148,588 Frasers Hospitality
LRG 2 Portfolio Mar-15 £225,000,000 2,443 £92,100 Cerberus
From the second quarter of 2016, the transactional market experienced a marked slow down.
In part, this was caused by the inevitable decline in portfolio transactions with the only
significant portfolio to transact in 2016 being the Atlas portfolio of mainly Holiday Inn Express
hotels operated under franchise agreement for in the region of £575 million (£103,000 per
bedroom).
More fundamentally the slowdown witnessed in 2016 was a result of investment decisions
being put on hold firstly in the run up to the EU referendum and then following the decision to
leave (Brexit), which reduced the number of transactions.
As a result, transactional volumes for the year declined by more than half the previous year’s
levels to a reported £3.5 billion. Although significantly down on 2014 and 2015 levels, the
amount transacted is broadly in line with the annual amounts in the prior four years.
The uncertainty around Brexit also impacted sellers’ decisions to bring assets to market. As a
result, the availability of stock has been more limited particularly in London. However, despite
the lack of stock coming to the market, the capital still accounted for approximately 50% of the
amount transacted in 2016 due to the significantly higher lot size with transactions of note
including the Doubletree by Hilton, Tower of London for £300 million.
With some uncertainty in the market since Brexit there appears to have been a flight to quality,
which is borne out by the appetite for fixed income hotel investments let to strong covenants
such as Premier Inn and Travelodge. This is also evident for trading hotels with investors
focusing on good quality assets in prime locations with proven earnings. As a consequence,
the yield gap between prime and secondary/tertiary assets is widening.
Reversing the trend of the previous two years, over the past year the investment market has
been dominated by domestic investors. Large scale investors such as the US private equity
37
firms that were dominant in 2014 and 2015 have turned their attention to other European
locations and sectors which offer better rates of return and as a result this has resulted in more
regional single asset transactions appealing to a more domestic market and by and large to
traditional owner operators.
2017 has seen a number of regional portfolios and single assets being brought to the market
as sellers start to make investment decisions that were perhaps put on hold in the second half
of 2016. Portfolio owners such as Lone Star and Starwood Capital have started to sell regional
hotels they deem to be non-core to their overall strategy.
These assets tend to offer good upside potential to individual buyers who are better able to
intensively asset manage and coordinate a re-positioning programme, be that refurbishing the
hotel, re-branding or improving management.
The UK is also still seen as a safe haven and continues to attract a large amount of international
capital. With the weakening of the pound, the UK market also provides greater value for
overseas investors and in this regard the market has attracted a number of Far Eastern
investors looking to take advantage of the favourable exchange rate. This is evidenced in the
acquisitions of South Place Hotel in London by Tian An China and the Lowry Hotel, Manchester
by CDL Hospitality.
In the largest transaction of the year Aprirose and its international investors, including Chinese
investor Cindat Capital Management, completed the acquisition of QHotels from Bain Capital
Credit and Canyon Partners in September 2017 for a reported £525m. The portfolio comprises
26 upscale hotels including spa hotels, golf resorts and luxury hotels across the UK with 3,680
bedrooms. The reported purchase price therefore equates to around £142,500 per bedroom.
There does however remain a degree of uncertainty in the market around the possible impacts
of Brexit on both hotel trading performance and the wider economy, which will be unknown for
some years. As a result, at this stage, we do not anticipate a significant increase in
transactional activity in the short term.
The table below detail a selection of transactions that have occurred in both London and the
regions in the previous 12 months:
38
No of Price per
Hotel Hotel Type Date Price
Rooms Room
London Hotels
South Place Hotel Moorgate Luxury May-17 £67,000,000 80 £837,500
Limited
Hampton by Hilton Docklands Apr17 £35,000,000 209 £167,464
Service
£300,000,00
Doubletree Tower of London Upscale Dec-16 582 £515,464
0
Regional Hotels
Lowry Hotel Manchester Upscale May-17 £52,900,000 165 £320,606
Holiday Inn Manchester Upscale Apr-17 £55,000,000 298 £184,563
Limited
Holiday Inn Express Edinburgh Feb-17 £17,725,000 161 £110,000
Service
Hyatt Regency Birmingham Upscale Sep-16 £38,627,000 319 £121,088
For prime London assets in central locations, there has been limited transactional evidence
although with limited supply coming to market. There does continue to be good demand and
yields have remained relatively stable over the course of the last 12 months.
12. Local Hotel Market Analysis

12.1. Existing Competitive Supply Analysis
The subject property competes to varying degrees with numerous hotels in the area. We have
however focused our detailed analysis upon the some of the most prestigious five-star hotels in
central London.
These include the Four Seasons (193 bedrooms), The Lanesborough (93 bedrooms), Claridge’s
Hotel (203 bedrooms), The Connaught Hotel (121 bedrooms), and The Dorchester Hotel (294
bedrooms).
39
Hotel Details
A. Four Seasons Hotel Park Lane The current Four Seasons remains on the
original site of the Four Seasons Inn on the Park
which opened in 1970. In December 2010, the
hotel reopened after a £125 million
redevelopment where an extra floor was added
to the building. The hotel has 193 bedrooms of
which 46 are suites, 3 food and beverage
offerings including the new “Amaranto”
restaurant, which opened in December 2010. In
addition, the hotel offers a spa on the new 10th
floor and 10 meeting rooms with capacities of 15
– 500 Covers. The 11-storey hotel now boasts a
sophisticated and modern character set in the
desirable location of Mayfair and situated near
the southeast corner of Hyde Park. The Spa at
Four Seasons is a located on the rooftop of the
hotel and offers floor to ceiling glass windows
with views of London. The Fitness Centre also
offers sweeping views across the city and
features state-of-the-art cardio and weight
training equipment.
40
B. The Lanesborough The Lanesborough is on Hyde Park Corner,

Knightsbridge, Central London, England.
Operated by the American Starwood Hotels
Corporation, the hotel is reputedly the most
expensive hotel in London, with the highest rate
as of 2013 being up to £18,000 per night for the
"The Lanesborough Suite". A 24-hour private
butler is available to each guest. The
Lanesborough has accommodated visiting
royalty, eminent politicians and entertainers.
Opposite are Hyde Park and Apsley House, the
home of the Duke of Wellington (title). The hotel
is next to Hyde Park Corner tube station and has
several restaurants and bars - each with their
own unique style. The Lanesborough is currently
undertaking an extensive renovation project. As
a result, the hotel has been closed since the 20th
December 2013 and not due to re-open until
Spring 2015. The new designs by world
renowned interior designer, Alberto Pinto, will
enhance all guest rooms and public areas. The
renovations will honour the building's
architectural heritage as one of London's most
revered Regency landmarks, and embody the
signature style that has become synonymous
with The Lanesborough, whilst incorporating the
latest in contemporary luxury and technological
innovations.
41
C. Claridge’s Claridge’s Hotel was originally a single house

bought by William and Marianne Claridge in the
1800’s. They then ambitiously bought the
adjoining five houses. In 1893 they sold the
hotel to the then owner of The Savoy, Richard
D’Oyly Carte, in 1893 who closed the hotel and
reopened it again in 1898 after a refurbishment.
Claridge’s is now owned by the Maybourne
Group. The hotel has 203 bedrooms of which 65
are suites, 4 food and beverage offerings
including the recently opened ‘Fera at
Claridge’s’, a Michelin Starred restaurant. In
addition, the hotel offers a health club & spa, a
gym, 10 meeting rooms with capacities of 4 to
800 covers. The fitness centre and spa are both
located on the top floor of the hotel and offer
stunning views of the surrounding area. The
hotel has undergone a restoration and
refurbishment within the last five years and is
therefore in very good condition.
D. The Connaught The Connaught Hotel was originally opened in

1815 as the Prince of Saxe-Coburg Hotel. It was
formed of two houses, owned by the Duke of
Westminster. In 1892 the hotel was rebuilt by
the owners under the direction of Sir John
Blundell Maple. In 1897 the hotel, known as the
Coburg opened. In 1917, the hotel is
rechristened The Connaught, a reference to
Queen Victoria’s seventh child, Arthur. The hotel
is owned by the Maybourne Group. The hotel
has 121 bedrooms of which 34 are suites, 4 food
and beverage offerings including the Hélène
Darroze, a Michelin Starred Restaurant. In
addition, the hotel offers a spa, swimming pool
and fitness centre, 7 meeting rooms with
capacities of 4 to 450 covers. The hotel
underwent a £70 million refurbishment in 2007
and is in reasonable condition.
42
E. The Dorchester The Dorchester hotel opened as a brand new

building in 1931 by Lady Astor. The hotel quickly
became synonymous as a haunt for famous
artists, poets and writers and gained a reputation
as a luxurious hotel. The hotel is part of the
Dorchester Collection which includes other
luxury hotels around Europe and the USA
including the Plaza Athénée in Paris and the
Beverley Hills Hotel in The USA. The hotel has
250 bedrooms of which 56 are suites, three food
and beverage offerings, including the only hotel
three Michelin Star restaurant in the UK, Alain
Ducasse at the Dorchester. In addition, the hotel
offers a health club and spa, a gym, 9 meeting
rooms with capacities of 15 to 500 covers.
Although the hotel has not been subject to a full
restoration and refurbishment for a few years, 22
of the suites were redesigned in 2012 and the
four room ballroom suite was restored to its
1930’s classic design.
The above competitive set comprises London’s leading luxury hotels. They are well established
and have a built a strong reputation based upon their service, quality of hotel and prime locations.
The subject hotel, whilst not benefiting from history, is nonetheless a property that is of equal
quality and in some respects, provides a superior level of finish than any of the above competitive
set.
Upon the property becoming established in the market, and on the basis, it operates under a
world class management team, we consider it will be, in due course, considered one of London’s
leading hotels.
Overview
As at the end of 2016, there were approximately 625,000 rooms across the UK with a further
18,000 (+2.8%) rooms forecast to be added in 2017. Of this total, over 7,000 rooms are expected
to open in London in 2017 – about the same as the combined 2017 pipelines for Edinburgh,
Manchester, Aberdeen, Belfast, Birmingham, Cambridge, Liverpool, Leeds, Glasgow and Bath.
In total a further 11,400 rooms are forecast to open in the regions. Trend wise it’s still a budget
story with branded budget rooms dominating the active pipeline.
PWC in a recent report expect net supply growth of around 4.6 % this year and 5% next year in
London – double the long term average over the period 1995-2015. Regional net supply growth
is expected to be more modest at about 1.7% and 2.4% in 2016 and 2017 respectively, still above
the long term average of 1.5% over 1995-2015.
43
London
Around half of London’s current 140,000 rooms provide 4 and 5 star quality accommodation, with
22% categorised as middle market or 2 and 3 star category and 20% offering travellers limited
service/budget lodging. Over 3,000 new rooms opened in 2015 alone, and a further 6,000 rooms
by the end of 2016. In 2017 an additional 7,000 rooms are scheduled to open their doors. Projects
likely to open in 2017 include 252 room, 5 star independent The Ned (on Poultry); Nobu
Shoreditch; 494 room Park Plaza at Waterloo; the second 4 star Dorsett at Aldgate, the second
4 star Ampersand City of London at Mansion House; the Park Regis Shoreditch and several
developments at Leicester Square.
New concepts include a continued trend to private member’s clubs with the opening of the 5 star
68 room Devonshire Club at Liverpool Street. The Hospital Club Covent Garden and The Arts
Club Green Park opened in 2015. Soho House’s Ned (see above) will not be a member’s only
business, however, there will be a member’s element with Ned’s Club featuring a rooftop space
with swimming pool overlooking the City of London. New supply openings in London show an
average long term growth rate of around 2.3% since 1995. While 2012’s record peak in openings
remains unchallenged, growth continues above average and indeed 2017’s growth rate is
approaching 5%. Add into this mix weak demand in H1 2016, brisk paced growth in apartments
and the expansion of shared space such as Airbnb (where PwC research shows), August listings
are up 54% on the same time in 2015, and it adds up to a challenging volume of rooms for the
capital to absorb each night.
12.2. Proposed Supply

Notable luxury hotel additions to London include the following:
Peninsula Hotel
Grosvenor and The Hong Kong and Shanghai Hotels, Limited (the owner of Peninsula Hotels)
have entered into a 50:50 joint venture partnership that seeks to redevelop the site. The newly
formed partnership will aspire to redevelop the 1.5 acre site opposite the gardens of Buckingham
Palace and overlooking Hyde Park into a mixed use scheme incorporating HSH’s first hotel in the
UK – The Peninsula Hotel London.
Mr Clement K.M. Kwok, Managing Director and CEO of Peninsula Hotels, commented: “London
is one of the world’s most important financial centres and a key international gateway city for
business tourism. This project is consistent with our Group’s long term strategy, representing our
desire to further expand in Europe.”
The partnership will be formed following HSH’s acquisition of Derwent London’s 50% leasehold
interest in the site for £132.5 million (approximately HK$1,564 million, exclusive of value added
tax and other applicable taxes).
The Peninsula Hotels group has a unique identity among the world’s leading hotels. Established
in 1928, they now operate prestigious luxury properties in nine major cities. These include the
flagship in Hong Kong, plus Shanghai, Tokyo, Beijing, New York, Chicago, Beverly Hills, Bangkok
and Manila, Paris opening in August 2014 and London under development.
Outline planning consent has been secured for the new hotel.
Admiralty Arch
The proposed new hotel at Admiralty Arch, at the Trafalgar Square end of the Mall will inevitably
enter the market at some point although this scheme seems to continue to be held up in
development terms. It has recently been announced that Waldorf Astoria have been selected to
operate the hotel.
44
US Embassy
The US Embassy will be converted to a luxury hotel in the coming years, the details of which are
currently unclear, although it has been recently announced that Rosewood have been selected
as the operator, making this their second hotel in London.
Whilst there is an active pipeline of new hotels set to come into the market, there are still relatively
few new hotels set to provide competition at the luxury end of the market. This should therefore
allow the subject hotel to continue to build market share. A lack of new hotels also means that the
globes luxury brands have less choice and so in reality should be strongly motivated to sign up
the Café Royal if the brand route was taken.
The Ned and Four Seasons have also recently opened in the City of London. When we
questioned hotel management at Café Royal they were fairly dismissive of the threat that these
two hotels will pose given the location.
12.3. Competitor Trading Analysis

The following data has been provided by Smith Travel Research (STR), an independent research
firm that is recognised by the hotel industry as the standard source of reliable data, provided
operating statistics on the local market as a whole. In reviewing the data compiled by STR, it is
important to note some of its limitations. We have found that because hotels are occasionally
dropped in and out of STR samples, and not every property reports data in a consistent and timely
manner, the overall quality of this information may be affected. These variables can sometimes
skew the data for a particular market. However, we find that STR data is generally relied upon by
typical hotel investors. Therefore, it has been considered in this study. The table shown below
illustrates the combined operating statistics for the competitive set.
 Four Seasons Hotel London at Park  The Connaught

Lane
 Mandarin Oriental Hyde Park London  The Dorchester Hotel
 Claridge’s Hotel  Corinthia London Hotel
The data for the competitive set excludes the subject property and was available from January
2015 through October 2017.
45
Compset vs Subject Performance
Occupancy ADR RevPAR
Year Subject Compset %Chg %Chg Subject Compset %Chg %Chg Subject Compset %Chg %Chg
2015 59.8% 78.4% -6.7 0.7 £402.33 £585.08 15.8 4.6 £240.40 £458.95 8.1 5.3
2016 70.3% 76.7% 17.6 -2.2 £400.54 £593.54 -0.4 1.4 £281.39 £455.44 17.0 -0.8
2017 YTD Oct 74.6% 69.5% 8.9 -10.1 £418.61 £638.47 5.2 9.4 £312.22 £443.78 14.6 -1.7
Given the limited nature of the STR data provided for our review the scope of our analysis is
restricted to a certain degree. The subject generally underperforms the competitive set in regards
to occupancy but displays common peaks and troughs associated with seasonality with its peers.
Over the past 28 months, the subject hotel has achieved an occupancy index of approximately
76 in 2015, 92 in 2016 and 107 in 2017 and a rank of 7, 6 and 4 respectively out of a possible 6.
The Average Daily Rate (ADR) levels of the subject and competitive set almost mirror in terms of
pattern but the subject underperforms relative to the collective group of its peers. ADR decreases
in the winter months are typical in the hospitality sector and are also apparent in the case of the
subject and the competitive set. Over the past 28 months, the subject hotel has achieved an ADR
index that hovers around 70 and a consistent rank of 7 out of a possible 7.
46
The graph below depicts the changes in all three performance measures. Key performance
metrics at the hotel has generally been positive throughout the past 28 months.
Performance data suggests that the subject hotel and its compset have stabilized with occupancy
levels around 70% and ADR between £300 and £700.
47
13. Retail - The Regent Street Occupational Market

Regent Street has a range of established multiple fashion and footwear stores, focused at the
middle and upper end of the quality spectrum and prestigious flagship/destination stores like
Burberry and Apple. Whilst many of these brands are UK based, including Coast, Church’s Shoes
and Jaeger, an increasing number are overseas operators such as fashion retailers from the US
and Europe like, J.Crew, Zara, Timberland, Cos, Hollister Co, and Brooks Brothers; retailers from
the UK are under-represented when compared to the Central London average. There are also
some speciality retailers such as Lush, L’Occitaine and Crabtree & Evelyn and Zara Home.
As in many of the Central London sub markets, the prime pitch within this busy and constantly
changing area can be difficult to define precisely and rental levels are often affected by the
attributes of individual buildings. However, traditionally the northern part of the eastern side of
Regent Street has been regarded as prime pitch, leading south from Oxford Circus, just past
Hamleys. Retailers here include & Other Stories (H&M Hennes’ premium brand), Omega, Cos,
Desigual All Saints, Banana Republic, Armani Exchange and Coach.
On the western side of Regent Street the quality of the retail offer has improved very significantly
over much of the length of the street. This was begun in part by the 2004 completion of the
redevelopment scheme on the North West side, which attracted Apple's flagship store and
marked a significant step forward in the Street's fortunes.
The fashion offer on the western side of the street is now typified by retailers like Ted Baker,
Hobbs, Burberry and Hackett. Superdry trades on the western side of the street, with Hollister
further down. The subject units are at the southern end of the street, traditionally the more
secondary part though with tenant demand consistently high this is increasingly less relevant.
The majority of recent developments on Regent Street have involved the amalgamation of stores
into larger floorplates to satisfy the strong demand from both domestic and international retailers
for flagship stores. The W4 development remodeled several shop units and offices to create two
flagship stores, completed at end 2013. Additionally, work completed in 2015 on the neighbouring
W5 block, involving the amalgamation of around five previous shop units to provide two flagships
units for Michael Kors and Polo Ralph Lauren.
An important initiative - The New West End Company (NWEC)- is a well established Business
Improvement District (BID), one of the largest in Europe. It is backed by key landlords and retailers
with a mandate to manage, strengthen and promote the key West End retail streets - Oxford
Street, Regent Street and Bond Street. The New West End Company has already had
considerable success in raising the profile of the West End, which has largely seen retail sales
performance ahead of the UK in recent years. In addition the NWEC has taken steps to improve
the physical environment of the West End’s shopping streets. NWEC's BID status was renewed
in 2012 with a mandate to last until 2018.
Competing Sub-markets
According to PMA research, Central London’s eight key retail sub-markets differ in size and retail
offer. Oxford Street is by far the largest with retail floor space approaching 4.5 million square feet.
Knightsbridge and Regent Street, although sizeable centres, are much smaller; Regent Street,
with 1.3 million sq ft has around 30% of the floor space of Oxford Street. Covent Garden and
Bond Street have very different retail offers but are broadly similar in size, with around 820,000
and 850,000 sq ft respectively, whilst Kensington High Street and Kings Road are rather smaller.
48
Retailing in the City of London has a more diffuse pattern but the main concentrations total around
1.6 million sq ft.
Regent Street's PMA Retail Score has increased significantly in recent years and is now closer
to that of Bond Street and Oxford Street. It is now clearly number three in the hierarchy.
Occupational Demand
At the time of writing Regent Street had a vacancy rate of 3.0%. This makes Regent Street
currently one of the most sought-after Central London locations, with retailer demand described
as 'very strong'.
In recent years, retailer demand for Regent Street has purportedly rocketed as the street has
become a hotbed for both new international retailers and domestic retailers (particularly at the
luxury end of the market) wishing to locate their anchor stores here, testament to The Crown
Estate's regeneration programme.
The most significant hub of activity for vacancy in 2016 was south of Vigo Street, where Austin
Reed released two large units (for its namesake brand and Viyella) onto the market. One of the
units, which are held on a long leasehold by Hermes, are due to be taken by Mulberry. Further
north, French Connection, another major retailer, returned space after continued weak
performance. Further down the street, there was not quite as much movement with the only
significant arrival being the UK debut of Spanish jewellery retailer Uno de 50.
Along the prime segment of Regent Street, Coach has taken a unit surrendered by Jaeger. The
leathermaker has opened a joint flagship for its namesake brand, as well as footwear brand Stuart
Weitzman. Further south, there has been quite a bit of movement, with retailers appearing to be
engaged in a game of 'musical chairs'. Lululemon has taken space at Nos. 187-191, previously
Gant, for its global European flagship. In turn, Gant has moved across the street to Nos. 184-186,
a slightly smaller space formerly let to Hugo Boss. Hugo Boss, in need of a larger store, has
moved next door to Nos. 178-182, a space vacated by Esprit in 2015.
Another characteristic of strong occupational demand is the level and frequency of premium
payments by incoming tenants to secure accommodation. These are very much the norm now on
Regent Street with premiums being paid that exceed £2m.
Rents and deals

Prime rents along Regent Street have remained broadly in-line with the Central London average
over the period of record. Rents on Regent Street are based on 30ft Zones.
At mid-`2017, we estimated prime rents in Regent Street at ￡855 psf Zone A. This represents a
significant increase on with rents now 80% above the pre-recession peak of ￡475 psf ZA. On
average, prime rents across the PROMIS 200 Towns remain 28.1% below the pre-recession
peak.
Regent Street has seen healthy levels of rental growth in recent years, largely driven by the Crown
Estate's regeneration programme. However, compared to the double-digit annual growth seen in
a number of Central London submarkets, Regent Street’s looks more measured. Having held
quite steady at £700 psf ZA for two years, rents have gradually risen in recent quarters.
Demand for the street remained extremely strong at the time of our latest 2016 Central London
Retailer Demand Survey. However, agents continue to suggest that rather than record rents being
49
achieved on the prime pitch, it is more likely that rents along the remainder of the street will
undergo a 'catching up' phase. Indeed, this has certainly been the case in the last 12-18 months.
Placing the tone of prime rents along Regent Street remains difficult. Traditionally, top rents were
achieved in the block immediately adjacent to Oxford Circus and fell proportionately further south.
However, limited leasing activity prevents us from providing an evidence-based assessment of
rental tone. A rent review for COS was undertaken in Q4 2016, with nine additional rent reviews
expected in 2017. Despite a mid-2014 rent review for Accessorize, being settled at ￡662.50 psf
ZA, sentiment indicates greater strengthening.
In the blocks opposite prime, along the western portion of the street between Oxford and Conduit
streets, there have been a number of transactions. Notably, French Connection vacated its
flagship unit at Nos. 249-251 in March 2016. The Crown Estate provided an estimated ￡2.4
million premium in compensation and plans to redevelop the site. Further south, Tory Burch has
signed to the recently vacated Michael Kors unit, agreeing to pay a ￡4.5 million premium for the
space as well as a high ZA of ￡760 psf. Rent reviews in these blocks have been settled around
￡660 psf ZA for Clarks, Longchamp and Molton Brown.
There has been more activity south of the prime pitch. A new top rent for this pitch was set with a
2015 letting to Links of London at ￡750 psf Zone A. The significance of this transaction is
tempered by its very small size and the fact that the global rent was just ￡263,000 per annum.
Several rent reviews in 2015 also suggested growth: a review on Church's unit achieved at ￡700
psf ZA, Karen Millen was settled at ￡625 psf ZA and Barker's Shoes at ￡587 psf ZA. This is
evidence that in Central London top rents are not only achieved on prime, but other quality
locations can reach similar values on the basis of strong retailer demand and low churn.
Several deals and major relocations were completed along Regent Street’s central pitch. 2016
saw Gant surrender its lease at Nos. 185-191. The retailer received a ￡5 million premium from
the Crown Estate for the unit and has agreed a ten-year lease for a 7,800 sqft shop across the
street at Nos. 184-186. The unit was formerly let to Hugo Boss, who in Autumn 2015 relocated to
a larger 15,000 sqft flagship at No. 180 – shared with Kate Spade and recently vacated by Espirit
earlier in the year. Both retailers paid significant premiums for their units, ￡3 million and ￡2.5
million respectively. Global rent for the Hugo Boss unit is slightly above ￡2 million and achieved
a ZA of ￡645 psf. The smaller Kate Spade unit has a ZA of ￡665 psf and a global rent of ￡1.4
million.
The space vacated by Gant is to be filled by athletic clothing retailer Lululemon, who signed a
lease for the 8,200 sqft unit in July 2016. Achieving ￡690 psf ZA and an estimated to be around
￡1.7 million, the store will be located next to new European flagships for Michael Kors and Polo
Ralph Lauren.
Another major relocation along Regent Street saw leather goods brand Coach agree to move into
the three-level space recently vacated by Jaeger. The 27,500 sq ft unit at Nos. 200-206 will house
joint flagships for Coach and its footwear brand Stuart Weitzman.
The southern portion of Regent Street, south of Vigo Street, has also seen evidence of growth.
Rents have generally been in the range of ￡450-500 psf ZA. The first half of 2016 saw Pepe
Jeans agree a deal with Standard Life to open its first European flagship. The jeans brand leased
a 1,500 sq ft unit at Nos. 59-61 on a ten-year term for an annualised rent of ￡700,000. 2015 saw
50
Jo Malone secured two units that will be combined to create a UK flagship in a deal that reflected
￡565 psf ZA, a record level for this section of the Regent Street. Stefanel also moved in at a
slightly lower rate of ￡458 psf ZA – however, this letting did involve a ￡1.8 million premium.
Rents on this part of the street have shown a very strong increase in the past five years. Sting
saw its annual rent double between rent reviews, from ￡1.4 million in 2010 to ￡3.1 million in
2015. Moreover, with Austin Reed’s former 23,500 sq ft shop coming available, we are likely to
see higher rents still. The menswear retailer was paying a reported ￡2.9 million per annum for
the unit.
Despite low levels of availability and reports of strong occupier demand for most Central London
retail pitches, there is some concern about the impact of rising occupancy costs following a period
of strong rental growth and the business rates revaluation; the full impact of which is likely to
become clearer over the coming months. Notwithstanding the rise in rental values, Regent Street
rents are still attractive compared to Oxford Street (£1153 per sq ft ITZA) and Bond Street (£2,227
per sq ft ITZA).
14. Retail Investment Market

Approximately £2.1 billion worth of retail property was transacted across the West End in 2016.
This volume was driven by the favourable currency rate and high levels of tourism. A large
proportion (approximately 54%) of the total market volume in 2016 was weighted to six
transactions on Oxford Street, with a further £299 million in three transactions on Bond Street of
which £1.03 billion of this combined activity traded in the aftermath of the June 23rd EU
referendum.
Volatility in the currency markets have presented buying opportunities to overseas investors,
particularly those from Euro and US Dollar denominated countries. However, increased
competition from the two aforementioned groups has not detracted from the depth of demand
from Asian investors, particularly high-net worth individuals, who are actively seeking prime
opportunities. Such foreign investors still view Central London as “fair value”, driven by the
favourable exchange rates, higher rental yields and lower taxation. This is reflected in the growth
of overseas investment year on year – 80% of the total volume traded in 2016, up from 65% in
2015.
As a result of increasing levels of competition and lack of supply, prices continued to increase
across the West End retail sub-markets in the past 12 months. This includes the yield
compression in the core which has had a ripple effect on other prime retailing streets, from The
London Luxury Quarter in the west to Seven Dials in the east, and also on central streets,
including Conduit Street, Dover Street, Albemarle Street and Piccadilly. Yields on the prime
retailing thoroughfares, principally Oxford Street, Regent and Bond Street are currently sitting at
2.75-3.00%, 3.00% and 2.50% respectively.
London still holds its reputation as a safe haven and is a preferred location for capital preservation
and secure long-term investment. This is reflected in yields being at a record lows, whilst pricing
continues to hold for both core and non-core locations.
In terms of rental growth, we remain cautious in the short term given the substantial tax liability
hikes to occupiers due to the upcoming rates revaluation but optimistic in the long term due to the
51
growth in tourism and overseas spending particularly for luxury retailers owing to currency
deflation in the pound.
Currently there is very little vacancy on the key streets, and in the prime retail locations such as
Bond Street high levels of key money are being paid. Investment opportunities are therefore few
and far between, which is reflected in the low initial yields for retail and record capital values.
We anticipate that investor demand for West End retail in the short to medium term is not likely
to let up, due to London’s position as one of the top retail and leisure destinations in the world,
and the particularly liquid and transparent nature of the market. This is aided by the strengthening
of foreign currencies against the sterling, which is likely to maintain London’s attractiveness to
foreign investors.
We summarise recent relevant property investment transactions that have occurred below.
The table below lists the most salient transactions from the previous 2 years:
Address Tenure Price NIY Date Comments

Tenant (Cap Val)
386 Oxford Street W1 FH £29.5m 1.7% Q1 2017 Let to Airwair International on a 10 year
(£2,340 psf) lease from April 2015, at a rent of £550,000.
10 Piccadilly LLH £129 m 3.53% Q1 2017 Multi let mixed use office and retail building
(£1,307 psf) comprises 98,660 sq ft. Sold off market.
Grafton House, 120-134 FH £69.74m 3.30% Q4 2016 Multi-let with a 330 room hotel above 26,400
Tottenham Court Road (£2,642 psf) sq ft of floor space
332 – 348 Oxford Street FH £400m 2.59% Q2 2016 Single let to Debenhams with an unexpired
(£1,091 psf) term of 22 years
334-361 Oxford Street LLH £124 m 3.70% Q3 2016 Multi let with the main tenant, Boots. Sold at
(Sedley Place) (£2,121 psf) a high yield owing to Brexit concerns.
31 Old Bond Street FH £36m 2.61% Q2 2016 This unit was around 25% reversionary at
Nirav Modi (£12,734 psf) the time of sale. The next lease event is in
2021, at which point the yield will revert to
c.3.20%.
161-167 Oxford Street FH £108 m - Q2 2016 Acquired by Sports Direct for their own use
(£3,319 psf)
47 Conduit Street VFH £13m 2.08% Q4 2015 Next lease event is the rent review in 2018
Lalique (£3,007 psf) when the yield will revert to in excess of
3.00%.
15. Business Analysis

Overview
The hotel has now been trading for around 5 years having opened in December 2012 following
an extensive re-development of the former Café Royal. The opening four years have proven to
be very challenging and the business has not matured to the anticipated levels prior to the
redevelopment of the hotel.
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The hotel boasts an elegant and modern design with cutting edge technology in its guestrooms
and event spaces. The quality of the finish and materials is outstanding.
In 2016, Set Hotels made a key appointment in Stephen Alden, the former chief executive of the
Maybourne Hotel Group. His arrival as chief executive at the Set reunited him with Thomas Kochs,
who was appointed managing director of the Café Royal in February 2016. Thomas was
previously general manager at Claridge’s, one of the three luxury hotels – alongside the Berkeley
and the Connaught – operated by Maybourne. However, unfortunately Thomas left the hotel
earlier in 2017 and we have also now been advised that Stephen Alden, whilst continuing as a
consultant has now also left to pursue a new opportunityhas recently left his position to pursue a
new opportunity.
We understand that Set Hotels have now appointed a new General Manager by the name of
Guillaume Marly who was part of the management team that opened the Chiltern Firehouse and
more recently has held a position at the ME Hotel. Guillaume comes with a strong food and
beverage background which will be important to the success of the hotel gong forwards given the
imminent capital expenditure on food and beverage within the Café Royal.
During 2017 there has been a sharp focus on new corporate accounts targeting finance,
entertainment, and junket business. A key initiative has been for the hotel to get onto the main
US Consortia programs such as Virtuoso and Fine Hotels and Resorts. However, they want to
see an improved arrival experience and a ‘softening’ of the guest rooms which are quite
masculine.
The hotel recently opened a sales office in New York which over time will grow to around three or
four people, whose primary task is to secure more US business for the hotel, as well as the other
hotels in the Set group, Conservatorium and Lutetia. The sales team also want to secure more
entertainment led business which they see continuing to be an important USP for the hotel. The
hotel has recently appointed a Director of Entertainment who will be key to growing the junket and
suite business to A listers.
There is currently around 17% of US business which is quite corporate led. If the hotel can secure
a position on the Consortia programs mentioned above, then the opportunity will be to continue
to grow the US market share but also replace it with higher rated leisure business. The hotel has
seen a growing trend from Asia which has increased by nearly 50%
The key to the business is building occupancy and rather than steering away from some of the
volume producing corporates, the team have ensured that they secure a good base level of circa
£300 ADR corporate business. It is important to ensure that the hotel is receiving business from
at least two or three of London’s main accounts, such as Mckinsey, Morgan Stanley, Disney etc.
The remainder of the corporate segment is then built up to comprise higher smaller, higher rated
accounts. In fact, the number of corporate accounts has increased from 70 to 117
Around 3-4% business through website last year now more like 11% through website following
improvements made in September 2016. The hotel designed a number of attractive offers on their
website to try and compete with the OTAs, one of which was to offer guests a credit of up to £60
to spend on F&B.
OTAs currently account for around 22% to 30%.
The hotel management are projecting a stabilised ADR of £600 in next three years and an
occupancy of circa 78%.
The Middle East crisis (Saudi Arabia) impacted the summer of 2017 as out of five large bookings,
only 2 parties actually travelled. However, generally the rooms business has picked up this year
with occupancy around 76%, although this is still 25% (5 percentage points) behind the competitor
set.
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Spa revenue is currently over £1million with profit growth. Further growth capacity in terms of an
additional 100 members before they reach a critical point. There was a reduction in members at
the end of 2016 down to 60 but this is now back to 120 and the hotel has also been able to
increase the average spend from members. They are currently looking to convert a lounge area
and meditation area into two additional treatment rooms as they are often at full capacity. This
will provide a Thai massage room and a new double treatment. They have not yet received any
quotes to undertake the work but are envisaging a maximum spend of £50,000.
In terms of F&B – meetings and events, the hotel has had a good 2017 with more repeat business
being generated.
The Ten room has also improved with a higher volume, helped in part by a higher occupancy at
the hotel in the first quarter.
There are currently plans to slightly re-position the café into more of a bistro with food than just
serving coffee and cake. This is mainly to extract a higher revenue per cover due to the limited
capacity of the space.
Afternoon tea volume has also increased in 2017 with the hotel currently well ahead of target.
The Club is still making a loss. It currently has 300 members although their contracts will not be
extended due to the wider plans to reposition the entire F&B offering. Some of the members will
be offered credit to use at the hotel to compensate them for their discontinued membership.
Following our latest inspection, we were a little disappointed in the current strategy for F&B. We
observed that the Green Bar is closed in the week until 4pm despite witnessing a couple of guests
being turned away. This effectively means that the hotel is operating without a bar which in this
location during the lunchtime period is not acceptable. In addition, Domino is not currently being
used, awaiting an appropriate business plan. Whilst we appreciate that work is about to
commence to re-address the problematic public areas it is really important that a more focused
strategy is executed in order to optimise the potential both the hotel product and location affords.
Set Hotels do not operate any type of points based Loyalty Scheme in the same way as an
international brand given its limited portfolio of properties. It would appear that the Café Royal is
attracting new guests and increasing its market share from other five star hotels in the area since
our last valuation.
The hotel has recently hired a director of loyalty and retention to work on a program which may
be called ‘Friends of the Set’. They are also acquiring a CRM programme to help manage this
programme.
The group does not have a central reservation system and instead all telephone bookings are
made direct to the hotel. The website is administered centrally and a reasonably high proportion
of bookings are made direct through this online system.
The following comments were taken from our management interview conducted with Stephen and
Thomas which provides a summary of the key issues.
Main issues when new management arrived at the hotel
- Pricing –high supplement from one category to the other.
- US and Asian market proving difficult to grow – mostly due to the lack of brand.
- Service concept to deliver personalised service.
The Sales team are regularly visiting Asia. As a result, guest numbers from Hong Kong, China
and Japan are slowly improving with some big suite bookers this year. The Middle East also
54
remains a key focus and the hotel is seeing an increase in bookings this summer. Ramadan has
just started but the hotel is still taking a lot of enquiries.
What has been done since team’s arrival
- Added “Hotel” before “Café Royal”
- Stronger brand name by emphasising the hotel’s history
- Better website – web booking YE 2016 64% higher than YE 2015
Distribution channels
- Website.
- GDS – at the moment only 10% of total bookings. It should be at least 20% but difficult
as Americans use travel trade more.
- OTAs – currently 26% (#1 Booking). Ideally reduce OTAs from 26% to 20% within three
years by increasing repeating customers, loyalty program and retention of staff.
Customer Mix
- 50% corporate – importance of corporate accounts (increased from 525 YE 2015 to 103
YE 2016). Importance of mixing the essential ones (i.e. McKenzie, Disney, Morgan
Stanley) with others (i.e. Dior, Barberry, Brunello Cucinelli) to build the base.
- 50% leisure.
- Goal to change the customer mix to 60% corporate to 40% leisure.
Any positive impact on leisure will most likely come from the US market, which only stands at
around 17% when they need to be at 25% to 30%.
Strategy
- Retain guests (from 21% YE 2015 to 32% YE 2016. Ideally it should be 60%).
- Retain staff (reduce by half to reduce costs).
Staffing costs have been reduced in the early part of 2017 with food costs maintained and
beverage cost under control. The hotel has put in place measures to control the cost of agency
staff and casual staff and this area also saw a reduced cost in February and March 2017. A
strategy whereby the hotel is using teams to work in different areas of the hotel has resulted in
further efficiencies.
Rooms
– Good ratio of suites although suite occupancy is too low.
- ADR – aim for £600 in three years (rack rate of second best suite and entry category is
£2,500 and £500 respectively but they would sell for £1,500 and £350 in low season).
- Occupancy – 78%-79% in stabilised year
- RevPAR - increased by 16% from YE 2015 to YE 2016
Change amenities from Floris to Aesop (three times more expensive but efficiencies from
other departments)
- Rooms profit at 70% but it could do 76%
F&B
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– New F&B director (used to work with celebrity chefs including Nunu Mendez). Use PR
activities to increase F&B revenue. Goals:
- New café concept to give visibility
- New menu including savory items and champagne to increase the average spend per
guest (not much revenue generating by selling tea) – in progress
- New lunch menu – Launched on Thursday 26th January 2017
- The hotel has changed its reservation portal – from Quadrant to OpenTable – which to
date has been successful.
- Banqueting – soft work in some rooms to create more character. Aim to improve
reputation.
- Member’s club – making a loss. Close it (no issues with dissolving memberships) and
use it as dining space open to guests and transients (see below)
Spa
– New director from Macau with experience in creating a brand – since he arrived better
results in customer retention and new membership program. Room for additional 100
members whilst maintaining exclusivity.
Revenues are growing
- Over £1m by YE 2016.
EBITDA
- Increase margin from 16% to 25% in the medium term (say YE 2018)
Trading Performance
The subject property is an existing hotel with a limited operating history due to having recently
been renovated and re-opened. The income and expense statements, illustrated in the tables on
the following pages, were provided by the management of the subject property, and are
unaudited. The statement below details the subject’s operating history for 2015 as well as the
2016 budget compared with the actual 2016 full year. Where applicable, we have reorganised the
statements in accordance with the Uniform System of Accounts for the Lodging Industry (Tenth
Revised Edition), published by the Educational Institute of the American Hotel and Motel
Association.
56
Historic Operating Performance

Year Ending 31-Dec 2014 2015 Budget 2015 Actual 2016 Budget 2016 Actual
Number of Rooms 159 159 159 159 159

Occupancy Rate 66.00% 68.00% 62.00% 68.00% 70.00%
Revenue Per Available Room (RevPAR) 230.34 302.54 #DIV/0! 306.68 282.10
Days Open 365 365 365 365 365
Total Rooms 159 159 159 159 159
Available Rooms 58035 58035 58035 58035 58035
Occupied Rooms 38303 39463 35982 39464 40625
TOTAL SALES 20,698,570 % POR PAR 31,597,869 % POR PAR 23,121,043 % POR PAR 32,056,531 % POR PAR 27,032,715 % POR PAR
BEDROOMS
Sales 13,055,995 63.1% 340.86 82,113 17,557,630 55.6% 444.91 110,425 14,019,770 60.6% 389.64 88,175 18,004,345 56.2% 456.22 113,235 16,513,086 61.1% 406.48 103,856
Expenses 4,710,523 36.1% 122.98 29,626 4,916,657 28.0% 124.59 30,922 4,547,574 32.4% 126.39 28,601 5,361,245 29.8% 135.85 33,719 5,432,561 32.9% 133.73 34,167
Departmental Profit 8,345,472 63.9% 217.88 52,487 12,640,973 72.0% 320.32 79,503 9,472,196 67.6% 263.25 59,574 12,643,100 70.2% 320.37 79,516 11,080,525 67.1% 272.75 69,689
FOOD & BEVERAGE

Food & Beverage Sales 5,938,465 28.7% 155.04 37,349 9,603,702 30.4% 243.36 60,401 6,515,350 28.2% 181.07 40,977 8,792,830 27.4% 222.81 55,301 8,300,427 30.7% 204.32 52,204
Other Income / Room Hire - 0.00% 0.00 0 - 0.00% 0.00 0 - 0.00% 0.00 0 - 0.00% 0.00 0 - 0.00% 0.00 0
Food & Beverage Cost 7,921,574 133.4% 206.81 49,821 7,977,586 83.1% 202.15 50,173 7,453,831 114.4% 207.16 46,879 7,208,515 82.0% 182.66 45,337 7,789,448 93.8% 191.74 48,990
Departmental Profit - 1,983,109 (33.4%) -51.77 12,472 1,626,116 16.9% 41.21 10,227 - 938,481 (14.4%) -26.08 5,902 1,584,315 18.0% 40.15 9,964 510,979 6.2% 12.58 3,214
CLUB FLOOR
Sales 780,845 3.77% 20.39 4,911 3,050,033 9.65% 77.29 19,183 1,226,817 5.31% 34.10 7,716 1,277,225 3.98% 32.36 8,033 788,951 2.92% 19.42 4,962
Expenses 1,545,937 198.0% 40.36 9,723 2,973,393 97.5% 75.35 18,701 2,037,548 166.1% 56.63 12,815 1,517,510 118.8% 38.45 9,544 1,166,414 147.8% 28.71 7,336
Departmental Profit - 765,092 (98.0%) -19.97 4,812 76,640 2.5% 1.94 482 - 810,731 (66.1%) -22.53 5,099 - 240,285 (18.8%) -6.09 1,511 - 377,463 (47.8%) -9.29 2,374
MINOR OPERATING DEPARTMENT

Sales 374,053 1.81% 9.77 2,353 237,663 0.75% 6.02 1,495 506,858 2.19% 14.09 3,188 2,827,162 8.82% 71.64 17,781 382,180 1.41% 9.41 2,404
Expenses 220,374 58.9% 5.75 1,386 45,142 19.0% 1.14 284 247,966 48.9% 6.89 1,560 2,247,499 79.5% 56.95 14,135 230,984 60.4% 5.69 1,453
Departmental Profit 153,679 41.1% 4.01 967 192,521 81.0% 4.88 1,211 258,892 51.1% 7.20 1,628 579,663 20.5% 14.69 3,646 151,196 39.6% 3.72 951
SPA/LEISURE/GOLF
Sales 549,212 2.65% 14.34 3,454 1,148,841 3.64% 29.11 7,225 852,248 3.69% 23.69 5,360 1,154,969 3.60% 29.27 7,264 1,048,071 3.88% 25.80 6,592
Expenses 761,720 138.7% 19.89 4,791 987,661 86.0% 25.03 6,212 889,161 104.3% 24.71 5,592 984,514 85.2% 24.95 6,192 995,283 95.0% 24.50 6,260
Departmental Profit - 212,508 (38.7%) -5.55 1,337 161,180 14.0% 4.08 1,014 - 36,913 (4.3%) -1.03 232 170,455 14.8% 4.32 1,072 52,788 5.0% 1.30 332
GROSS OPERATING INCOME 5,538,442 26.8% 144.60 34,833 14,697,430 46.5% 372.44 92,437 7,944,963 34.4% 220.81 49,968 14,737,248 46.0% 373.44 92,687 11,418,025 42.2% 281.06 71,811
LESS EXPENDITURE
Administrative & General 2,342,526 11.3% 61.16 14,733 2,616,341 8.3% 66.30 16,455 2,643,893 11.4% 73.48 16,628 2,622,059 8.2% 66.44 16,491 2,657,366 9.8% 65.41 16,713
Sales & Marketing 2,519,912 12.2% 65.79 15,849 2,663,427 8.4% 67.49 16,751 2,344,536 10.1% 65.16 14,746 2,989,846 9.3% 75.76 18,804 2,985,971 11.0% 73.50 18,780
Utility Costs 953,322 4.6% 24.89 5,996 943,002 3.0% 23.90 5,931 906,895 3.9% 25.20 5,704 937,833 2.9% 23.76 5,898 854,434 3.2% 21.03 5,374
Repairs & Maintenance 903,607 4.4% 23.59 5,683 905,052 2.9% 22.93 5,692 1,211,291 5.2% 33.66 7,618 1,147,707 3.6% 29.08 7,218 1,241,135 4.6% 30.55 7,806
TOTAL UNDISTRIBUTED COSTS 6,719,367 32.5% 175.43 42,260 7,127,822 22.6% 180.62 44,829 7,106,615 30.7% 197.51 44,696 7,697,445 24.0% 195.05 48,412 7,738,906 28.6% 190.50 48,672
GROSS OPERATING PROFIT - 1,180,925 (5.7%) -30.83 -7,427 7,569,608 24.0% 191.82 47,608 838,348 3.6% 23.30 5,273 7,039,803 22.0% 178.39 44,275 3,679,119 13.6% 90.56 23,139
LESS FIXED COSTS

Property Tax 1,304,454 6.3% 34.06 8,204 1,706,600 5.4% 43.25 10,733 1,766,112 7.6% 49.08 11,108 1,751,844 5.5% 44.39 11,018 665,352 2.5% 16.38 4,185
Insurance 317,904 1.5% 8.30 1,999 312,000 1.0% 7.91 1,962 285,975 1.2% 7.95 1,799 308,157 1.0% 7.81 1,938 310,459 1.1% 7.64 1,953
Other Costs 0 0.0% 0.00 0 0 0.0% 0.00 0 -3,136 (0.0%) -0.09 20 0 0.0% 0.00 0 0 0.0% 0.00 0
Head Office 568,424 2.7% 14.84 3,575 696,000 2.2% 17.64 4,377 687,563 3.0% 19.11 4,324 696,000 2.2% 17.64 4,377 654,390 2.4% 16.11 4,116
Rent & Service Charge 311,277 1.5% 8.13 1,958 450,818 1.4% 11.42 2,835 410,399 1.8% 11.41 2,581 438,600 1.4% 11.11 2,758 420,599 1.6% 10.35 2,645
TOTAL FIXED COSTS 2,502,059 12.1% 65.32 15,736 3,165,418 10.0% 80.21 19,908 3,146,913 13.6% 87.46 19,792 3,194,601 10.0% 80.95 20,092 2,050,800 7.6% 50.48 12,898
NET OPERATING PROFIT (Pre FF&E Reserve) -3,682,984 (17.8%) -96.15 -23,163 4,404,190 13.9% 111.60 27,699 -2,308,565 (10.0%) -64.16 -14,519 3,845,202 12.0% 97.44 24,184 1,628,319 6.0% 40.08 10,241
Fixtures, Fittings & Effects Reserve 0 0.0% 0.00 0 0 0.0% 0.00 0 0 0.0% 0.00 0 0 0.0% 0.00 0 0 0.0% 0.00 0
NET OPERATING PROFIT (Post FF&E Reserve) -3,682,984 (17.8%) -96.15 -23,163 4,404,190 13.9% 111.60 57 -2,308,565
27,699 (10.0%) -64.16 -14,519 3,845,202 12.0% 97.44 24,184 1,628,319 6.0% 40.08 10,241
2017 Actual Results
We have been provided with actual trading results for the year ending 31 December 2017.
Performance Review
Although the hotel did not make the 2016 budget, the reasons given above identify that the
fundamental structural issues at the hotel are now being addressed and we have been provided
with a new Four Year plan prepared by a highly experienced management team who have
specialised in the London luxury hotel market.
58
The Café Royal Hotel continues to under-perform in terms of its potential. This is
clear when comparisons are made with its competitive set.
The first point to make is that there is categorically no precedent for a hotel such as
the subject to make low or operating losses and therefore for valuation purposes
we should consider that the current operator has historically underperformed and
therefore not operating the business as it should be. Under the RICS valuation
guidelines the valuer is guided toward reconstructing the operating performance to
reflect a competent operator running the business commensurate with the wider
market.
It is our opinion that the performance of the hotel could be substantially improved
beyond the current trading and near term trading projections. We consider that in
addition to the improvements being made by the new management team, a
recognisable luxury brand could also potentially accelerate the stabilisation of the
hotel, although in the long term would potentially remove any additional upside that
can be gained by developing a new brand, as Set Hotels are currently doing.
59
It is our firm view that prospective purchasers for this hotel would choose to ignore
the historic performance and form their own view as to the prospective future trading
performance. This to some extent is being demonstrated by unsolicited interest in
the hotel from investors all across the globe seeking to secure a central London
hotel. Our agency takes calls from investors on a weekly basis providing us with
their investment requirements and this is often for a hotel within the West End
forming a fairly tight geographical area, within which lies the Café Royal.
16. C&W Trading Projections

Introduction & General Assumptions
We have accordingly put together our own trading projections based on benchmark data from
comparable central London hotels having consideration to the physical accommodation of the
Café Royal. There are two very important factors which will in our opinion result in strong bidding
for the subject property:-
1. Excellent location.
2. High Quality product having been finished to a very high quality.
Fundamental to the opinions of operating results is the assumption of competent and efficient
management at the property level, a well-coordinated marketing plan for the hotel, and a well-
devised yield management strategy. Among the primary responsibilities of management are the
maintenance of a quality facility, the execution of an adequate marketing effort, and operating in
a cost efficient manner.
Our projections incorporate an opinion of general price inflation based upon economic projections
from various sources and historical data. To portray price level changes, we have assumed an
average inflation rate of 2 percent per year throughout the projection period. This assumption is
intended only to portray an expected long-term trend in price movements, rather than for a specific
interval in time.
Based on our review of the subject’s prospective operating performance, as well as our analysis
of comparable hotel income and expense statements and industry norms, we have derived base
levels of income and expense. The units of comparison include percentage of departmental
and/or total revenue, amount per available room, and amount per occupied room.
After reviewing the projections prepared in respect of the subject property, hotel industry
averages, and the performance of comparable hotels, we have developed a ten year projection
of income and expense, with the first year beginning November 2017.
The projection of income and expense is intended to reflect the valuer’s opinion of how a typical
buyer would project the subject property's operating results. Depending on the dynamics of the
local market, a typical buyer's projection may be adjusted upward or downward. We have
attempted to incorporate these considerations into this analysis.
Trading Projections Operation

The following charts depicts our summary profit and loss projections showing the hotels income
and expenses for the five years commencing January 2018. The statements are expressed in
inflated terms for each year.
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We have adopted four hotel comparables in benchmarking where we consider the Café Royal
should be achieving in the hands of a hypothetical operator seeking to optimise the revenue and
profitability of the business through the most efficient operation of the hotel.
We have arrived at our conclusions through analysing POR and PAR as well as % of
revenue/profit. We have had regard to the F&B accommodation at the subject hotel as compared
to the comparables as well as the location and other specific characteristics. Our approach is
though dominated by a benchmarking process and not an analysis on a per cover or per square
metre basis.
In terms of occupancy we have considered comparable benchmark hotels whereby we have
access to trading data which includes the Corinthia, Ham Yard and the Rosewood Hotel. We have
considered occupancy based on the number of bedrooms of the competitive hotels and also
whether they derive an advantage of being a branded hotel. Our occupancy conclusion is that
with only 159 bedrooms the Café Royal should be capable of performing at a stabilised occupancy
of 80%. Although this represents over 10% points above the existing occupancy level we are
comfortable that this is the extent to which the hotel is currently under trading. We are also
suggesting that the hotel would still take 4 years to reach this point, such is the extent of ground
the business needs to make up on its comp set.
Our ADR projection also considers our knowledge of competing hotels as well as STR data
available to us. We are satisfied that our projected rate, whilst significantly higher than the
achieved rate is at a level which is supported by the competitive set. The bedroom product is very
high end and therefore with the exception of the ratio of suites to bedrooms should be compared
to the high end comp set for London.
We have actually adopted an ADR of £460 in year one which we have then grown by 9% in year
two to reflect the scenario of a new owner re-positioning the hotel from its current performance
levels with the benefit of a brand. The competitive hotel set has in the last year seen an increase
in ADR of around 9%.
Our room’s departmental profit in Year One equates to £113,000 per bedroom whereas the
competitive set equates to an average of around £100,000 per bedroom.
We have applied operating costs in accordance with industry norms and the competitive set. We
have made some key decisions in preparing our projections such as determining that the Private
Members Club simply should not be operating at a loss. Whilst these businesses do tend to be
low margin, there is no other precedent in the market for a business of this type in this location to
be making a departmental loss.
Please find below some additional F&B benchmark analysis.
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Please find below as requested some additional OPEX benchmarking analysis.
Our operating cost structure is in line with similar central London 5 star hotels with the exception
of MOD expenses. Each hotel tends to be different in terms of the income generated within this
department and so it is more difficult to benchmark. We have to some extent been guided by the
historic accounts in respect of this line item which has historically shown that an 80% margin is
achievable.
Our profit margin is the result of our benchmarking exercise against similar hotels which generate
a departmental profit of between £12,000 and £20,000 per available room. We are at the top end
of this range but consider that the F&B at the Café Royal is potentially a more profitable mix of
business than some of the benchmarking hotels.
We have decreased business rates slightly from our last valuation which reflects the new 2017
rating assessment.
We have allowed for management fees based on 2% of revenue and 5% of adjusted gross
operating profit. We consider that such is the opportunity for one of the world’s leading brands,
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they would be prepared to be competitive on management fee to enable them to achieve strong
representation in central London.
Our previous FF&E reserve at 1% of revenue reflected the fact that the hotel was still relatively
new. However, it is important that the FF&E reserve now begins to accumulate in order to cover
the cost of a soft refurbishment in the next five or six years. Our FF&E reserve now commences
at 3% of revenue in Year One and stabilises at 4% of total revenue from Year Two onwards.
Our projected NOP equates to around £41,000 per bedroom in our first year projection. This
compares with our benchmark hotels all achieving in excess of £50,000 per bedroom. The
differential to some extent reflects the difference in non-bedroom income at the subject hotel
compared with the competing hotels.
17. Principal Valuation Considerations

We have included a lengthy section in this report covering the London hotel operating and
investment market. These sections have been added to reflect the importance in the current
market of considering the global interest which is likely to result in a prime London asset coming
to the market. It is therefore important to examine what advantage London may offer to investors
over and above other key cities around the world.
In summary London is currently providing a number of important investment drivers ensuring that
it can be competitive against competing cities: -
 London is a prime global city;
 Significant annual growth in visitor numbers
 Democratic political status;
 Strength of currency;
 Transparency of planning system;
 Lack of corruption;
 Continued forecast growth in the worldwide luxury market with forecast increases in the
number of HNW with a wealth in excess of £30million and also those in excess of
£1billion.
The risks London faces are clearly the inverse of the above factors, although clearly a democratic
political status, planning system and lack of corruption are long term factors which are highly
unlikely to change in the foreseeable future.
17.1. Café Royal Hotel

We consider that if the subject was to be offered to the market there is likely to be a significant
level of demand from both domestic and international investors.
The location is a key factor being situated in the heart of London’s West End. The property is
well situated near various historical, entertainment, and tourist attractions and vacant land for a
potential new development is non-existent.
The Quality of the finished product is also a key factor. The current market is dominated by
investors who are seeking to extract additional value either through re-branding, new
management, re-positioning of F&B etc. The hotel has been completed to an extremely high
quality and so there are certainly no opportunities to improve this further. The type of purchaser
attracted to the hotel is therefore more likely to be a high net worth individual wishing to make an
‘ego’ purchase or perhaps a highly capitalised owner operator who might perceive the acquisition
of Café Royal to represent an opportunity to introduce a high quality London flagship hotel into
their existing portfolio.
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The hotel is not currently branded but does create some significant room for extraction of
additional value if an international operator were to acquire the property.
Potential Purchasers
There are a number of potential investors were the property to be exposed to the market.
As mentioned above we foresee it more likely that a high net worth or owner operator (possibly
Asian looking for market representation in London) would emerge as the successful buyer. Whilst
we do not consider Café Royal to have yet achieved Trophy status (although we would not
discount this in the future), it remains a highly desirable asset.
Although a number of potential purchasers will probably have the ability to acquire the asset for
cash, there are others who will require a debt facility. We are confident that subject to the terms
and conditions and loan amount agreed, the hotel offers excellent security and therefore it is
foreseeable that a number of banks would be willing to support a new purchaser. The only caveat
to this is that the historic trading cannot be relied upon and so this may make some of the more
traditional lenders more nervous.
Although we would not rule it out, we consider it unlikely that a Sovereign Wealth fund would
emerge as a potential buyer as the absence of an established brand is absent. These funds
typically target larger branded hotels which are under the operation and control of much larger
operating companies such as Hilton, IHG, Starwood, Fairmont etc.
Private Equity groups are highly focussed on returns and exit strategies with the opportunity to
‘add value’. Café Royal does not therefore fit with this requirement, being an investment
acquisition which needs to be supported by a long term hold strategy.
The leasehold status of the property could deter some investors, particularly international
investors who generally prefer freeholds, although there is increasing evidence to suggest that
leasehold properties are beginning to lose some of their stigma. It is increasingly difficult to fine
freehold opportunities in central London, which has long been the case with the private London
Estates controlling the market, but new financial structures being put in place by pension and
insurance companies acquiring freehold properties subject to a ground lease is growing.
Exposure Time and Marketing Time
Based on our review of national investor surveys, discussions with market participants and
information gathered during the sales verification process, a reasonable marketing period for the
subject property at the value concluded within this report would have been approximately 6 to 9
months. This assumes an active and professional marketing plan would have been employed by
the current owner.
Tenure
Our valuation has to reflect the leasehold tenure.
Investors invariably have a preference for freehold assets but in central London they are scarcer
and it is not uncommon for a hotel to be subject to a ground lease. The rent can typically be a
broad range as a proportion of overall EBITDA from nominal peppercorn to upwards of 50% of
the overall EBITDA. The higher the margin of rent to EBITDA the more nervous investors will
become, particularly as the rent might increase in the future at a quicker rate than the overall
profits from the business. There is market evidence to suggest that yields for leasehold assets
are higher than for the equivalent freehold. This can range from a 25 basis point differential to as
much as 200 basis points if the terms and conditions of the lease are very onerous.
Operating Structure
In its current format, the subject hotel can be sold free and clear of any management agreement
or franchise agreement. This would be particularly appealing to potential purchasers as it leads
to a broad range of future options. It will also serve to broaden the type of investors likely to bid
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on the hotel. An owner operator would see the advantages of being able to own and operate,
whereas a PE, property company or institutional investor may see an opportunity to create a
management agreement and either brand the property or continue to operate as an independent
entity.
Indeed, we consider the optimum value to be generated form the subject hotel is from the
business benefitting from a recognised luxury global brand.
17.2. Retail
Location / Situation and Competition
The property is located on the eastern side of one of the prime retail streets in the UK. Traditionally
a stronger location than the western side because of the larger units, (Hamleys, the ex- Dickins
and Jones department store which now houses H&M).
It is located on the southern end of Regent, the weaker end, (further from Oxford Circus) but with
tenant demand outstripping supply the gap between north and south is decreasing.
Regent Street receives approximate 7.5m visitors a year.
Building Design/Condition/Suitability
The building was redeveloped in 2012 behind the listed façade. The design, condition and
suitability of the property and accommodation is satisfactory for the current mix of uses.
Site/Environmental Issues
None of which we are aware. The property is located in an area that has long been in retail and
office use.
Planning/Statutory Issues
None of which we are aware
Tenure
Long leasehold interests occasionally deter potential purchasers. However, along Regent Street
the freeholds are owned by the Crown Estate and even long leasehold ownerships are
uncommon. Therefore, being a long leasehold is not necessarily detrimental. In addition, the
unexpired term of c.120 years and as such this does not have any detrimental impact on value.
Income Security and Tenant Quality

Nespresso (D&B Rating 2A1) have strong turnover figures and their parent, Nestlé Holdings UK
limited, are of the highest covenant strength.
Lotus (D&B Rating of 3A2) are loss making but owned by a Proton a blue chip Asian motor car
manufacturer.
Wolford (D&B Rating of C3) made a marginal loss as at April 2016 but have reasonable turnover.
In the current market tenant quality and to an extent lease length are not of paramount importance
as demand is so high that void periods are practically non-existent and the vacancy rate for
Regent Street according to Promis currently stands at 3%.
Lettability
Given the excellent location of the property we anticipate minimal void periods should units
become available. There is more demand than supply currently for units on Regent Street and on
assignment of leases we have commented above on the substantial premium payments that have
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been made / received. The only issue in terms of void periods would be the tenant mix specified
by the hotel which has to work with the hotel’s brand image. Since we cannot comment
knowledgeably on the policy our view of void periods reflect the wider Regent Street market.
Asset Management Opportunities

Wolford have removed their break so the need to negotiate this out or re-let the unit is no longer
necessary. Settling their and Nespresso’s review are the main initiatives to increase income.
A further opportunity is attracting a new tenant for Lotus’ space, who wish to vacate owing to their
rent almost doubling at the last review. The lease is currently in the market with Cushman &
Wakefield instructed to find an assignee.
Rental and Capital Performance and Growth Prospects

In our opinion rental growth has tailed off in the last 12 months which is reasonable given it ran
from 2012 to 2017 at c.20% p.a. Supporting this view has been the difficulty in assigning Lotus’
lease, which is partly down to the slower market but partly to the long leaseholder who is keen to
sign a strong covenant.
A further hindrance to rental growth is the 2017 rates revaluation which has added a further
burden to occupiers. Our view is that rents will remain flat in the short term though given supply /
demand dynamics, with many more interested occupiers than available units along Regent Street,
this trend should be temporary.
Underlying this is the unsigned, 94-100 Regent Street (the old Austen Reed store) letting which
is being carved up into three units. Mulberry are expected to take the most prominent unit at £800
ZA. This represents a massive jump for the less sought after south part of the street and should
have a positive influence on rents at the subject property.
While there are some headwinds regarding the UK commercial property market, these seem yet
to hit the “super prime” investment sector. The pound is still weak for foreign buyers so while the
rental growth picture is mixed, the investment market has remained stable, supporting capital
values in the short to medium term.
Saleability
Current Sale Prospects
What is the estimated period it would take to sell the property at 6 months
Market Value?
Purchaser demand is likely to be Very Strong
If available on the market, the subject property would represent a highly desirable asset and would
generate a significant level of attention. Potential purchasers would include institutional investors
and property companies similar to the existing owner.
18. Valuation Approach and Opinion of Value

18.1. Market Value Hotel
Approach
The value of a trading hotel is assessed by adopting the income approach to valuation whereby
the sustainable earnings that can be generated are capitalised at a rate of return that investors
require in the market.
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The approach adopted will ultimately depend on the type of hotel asset and the level of
sophistication of purchasers in the market although this would typically involve adopting a
discounted cash flow whereby the future earnings of the business are discounted over a given
period before assuming a sale at the end of this period.
Adopting an income approach also requires the analysis of comparable transactions in the market
to assess the rates of returns investors are prepared to accept at the date of valuation. The sales
approach is also used as a secondary measure to analyse value on a price per bedroom basis
as this method this will often be used by purchasers in the market as a guide.
As such our opinions of value are based on analysis of recent relevant market transactions
supported by market knowledge derived from our agency experience. In view of the current state
of the market, there is a shortage of directly relevant evidence and a greater than usual degree
of judgement was applied in arriving at our opinions of value.
Methodology
In assessing the value of the hotel we have adopted a discounted cash flow (DCF) having regard
to the performance of the business as shown in our assessment above.
Under this approach the future profits of the hotel are discounted to present day values at a
discount rate reflecting the opportunity cost of capital and risk associated with the investment. It
is assumed that the asset will be sold by the end of a given period – 10 years in this instance –
and thus the projected net operating profit in the 11th year is capitalised at a market yield before
being brought back to present day values.
The discount rate is the rate of return which equals the sum of the real return anticipated in the
investment plus a change in value and any risk premiums associated with the specific investment
when compared to alternative investments. It is the average annual rate of return necessary to
attract capital based upon the overall investment characteristics.
The discount rate selection requires the valuer to interpret the attitudes and expectations of
market participants. Discount rates are partly a function of perceived risks. Risk is a function of
general economic conditions and characteristics of the investment. The critical elements of an
investment include the quantity and certainty of gross income, operating expenses, and resultant
net income over some future time period.
The proposed hotel will generate an operational income stream rather than a fixed rent income
stream and so the greater potential volatility of this will be taken into account by investors.
Our analysis of applicable terminal capitalisation and discount rates for the subject property
specifically consider the building type and condition, the current local hotel market conditions,
estimated future trends in the hotel market and required returns on investment for similar
investments.
A determination of the appropriate discount and capitalisation rates for the subject involves
analysing comparable transactions, speaking with investors and brokers of hotel properties
throughout the country, discussing investment parameters with other hospitality industry experts,
and considering the results of several published investment surveys.
It is very difficult to compare this with other hotel transactions as trading data is often confidential
and where it is available it is it is extremely difficult to analyse the true trading potential of the
hotel. The table below however sets out details of comparable hotels in the market together with
the yield achieved (where data is available) and price per bedroom.
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Address Transaction Details
Threadneedles Hotel  Sold January 2017

 £39,900,000
 £539,000 per room
 4.7% (based on 2017 budget)
The leasehold interest in Threadneedles Hotel, a 5* boutique hotel
in the City of London sold earlier this year. This 74-room property
is situated in a former Victorian bank headquarters, and features
a restaurant carrying the iconic Wheeler’s of St James brand by
internationally renowned chef Marco-Pierre White, as well as an
lobby lounge with stained glass dome, and three conference
rooms.
The hotel is currently operated under a franchise agreement as a
Marriott Autograph Collection.
The hotel is held leasehold for an unexpired term of 56 years. The
passing rent amounted to £303,240 in 2015; and rent on the Cock
and Woolpack Public House amounted to £52,307 in 2015
including all service charges.
Net operating income in 2017 budget equates to £1.9million and
set to increase to £2.2million in 2018.
Threadneedles is a luxury hotel but also comprises a much shorter
unexpired term than the subject property. The rent outgoing is also
higher than the Hotel Café Royal.
South Place Hotel, Moorgate, Central  Sold April 2017

London  £67,000,000
 £837,500 per room
 4.27%
The freehold interest in the 80 bedroom South Place Hotel near
Moorgate is rumoured to have been acquired by Tian An China
Investments. A reported £80M guide price was set for the 5 star
hotel, which opened in 2012 and is leased to D&D London until
2047 subject to a base rent with an additional turnover element.
South Place Hotel is situated in a strong location in Moorgate near
to the various demand drivers within the City of London. It is
operated by one of the largest restaurant operators in London,
with a proven track record in high quality dining facilities, with the
majority of revenue generated from food and beverage, which
serves to skew the capital value on a per bedroom basis. Further,
this was an investment transaction, with the value linked to the
passing rent as opposed to be trading performance offering more
security. As such, this does not offer good comparable evidence
for the subject.
Doubletree Tower of London, EC3N  Sold December 2016

 £300.8 million
 £515,463 per bedroom
 6.00%
The Doubletree by Hilton is a 582-room, upscale hotel overlooking
the Tower of London, in the east side of the city. It was sold from
Blackstone to Muirgold Ltd under a management agreement with
Hilton. There was an option to sell with vacant possession.
The Doubletree is situated in a strong location, next to Fenchurch
Street Station. In product terms, it is of a lower quality than the
Hotel Café Royal. The Doubletree was reportedly a stabilised
business, historically achieving an occupancy rate of circa 83%
and an ADR of circa £190.
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Hilton Docklands, SE16  Sold September 2016

 £80,000,000
 £211,000 per bedroom
 Circa 6.00% gross yield
Junson Capital, a family fund from mainland China, acquired the
378 bedroom Doubletree by Hilton hotel in London’s Docklands
for around £80m. The investor bought the 4 star Doubletree by
Hilton hotel from HIG’s Bayside Capital, for nearly double the
amount Bayside bought the property for two years previously. The
deal marks Junson’s debut property purchase in the UK. The
hotel includes 9,286 sq ft of event space and 15 meeting rooms,
as well as its Millennium Suite, connecting to a terrace regularly
used for wedding receptions of up to 160 guests.
The subject hotel is situated in a weaker location.
The Cranley Hotel, SW5  April 2016

 £17,500,000 guide price
 £448,718 per room
 6.47% gross yield. NIY 6.10% assuming full costs.
The Cranley Hotel occupies 3 Victorian-era townhouses near Old
Brompton Road. The hotel is a 4 star property which Woodbridge
Capital acquired from KOP Group, a Singapore-based institution.
The Cranley Hotel is not purpose built. As such, we would expect
the subject property to appeal to a different class of investor.
Regency Hotel, Queen's Gate,  October 2015

Kensington  In excess of £100,000,000
 £492,000 per room
 Yield unknown
Crimson Hotels purchased the 4 star 203-bed Regency Hotel on
Queen's Gate in Kensington, London. Crimson was to invest
£10M refurbishing the hotel before opening it as a DoubleTree by
Hilton in early 2016.
The Regency Hotel is situated in a weaker location and comprised
a lesser quality product.
Ace Hotel London Shoreditch  April 2015

 £150,000,000 (guide)
 £581,395 per room
 Yield unknown
Starwood Capital Group acquired the 258-bed Ace Hotel London
Shoreditch. Ace Hotel Group will continue to manage the lifestyle
hotel, which was fully refurbished in 2013.
The subject hotel is situated in a weaker location. The hotel
product is more design led than upscale and has more non-
bedroom income.
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St Ermin's Hotel  January 2015

 £185,000,000
 £558,000 per room
 Yield unknown
Sunrider Group acquired the 4 star 331-bed St Ermin's Hotel in
London. The Taiwan group paid Angelo Gordon, Gracemark and
Amerimar Enterprises for the property near St James's Park,
which is operated under Marriott's Autograph brand. CBRE
handled the sale. This hotel was originally acquired for
approximately £65million with a subsequent cap-ex spend of just
over £30million, resulting in a significant profit.
St Ermin’s Hotel is situated in a weaker location albeit the
transaction is also somewhat historic.
Based upon our knowledge of current investment returns required by typical hotel investors, along
with factors affecting investment risk specific to the subject property, we have employed a
reversionary Capitalisation rate of 4.25% for the subject property. Our capitalisation rate selection
process was weighted by our analysis of the resulting running yields, which in this case equates
to a net initial yield of 2.6% in year One. This is however based on the hotel continuing to build
upon its performance and so a more realistic position would be the stabilised yield which is in this
case 4.4%. It is very difficult to compare this with other hotel transactions as there have not been
any similar hotels to analyse. We are aware that at the very top end of the retail market investors
have paid sub 3% yields (as low as 2.5%) for freehold Bond Street flagship stores. We must
consider in regard to the Café Royal Hotel that it is held on a leasehold basis and whilst in an
excellent location is not as prime as Bond Street. It is also generating an operational income
stream rather than a fixed rent income stream and so the greater potential volatility of this will be
taken into account by investors. By adopting a capitalisation rate of 4.25% our resultant stabilised
initial yield of 4.4 % represents spread of almost 100-150 basis point from prime retail. We
consider this is appropriate to reflect both the leasehold tenure and the exposure to operational
income as opposed to fixed rental income.
The discount rate is the rate of return which equals the sum of the real return anticipated in the
investment plus a change in value and any risk premiums associated with the specific investment
when compared to alternative investments. It is the average annual rate of return necessary to
attract capital based upon the overall investment characteristics.
The discount rate selection requires the valuer to interpret the attitudes and expectations of
market participants. Discount rates are partly a function of perceived risks. Risk is a function of
general economic conditions and characteristics of the investment. The critical elements of an
investment include the quantity and certainty of gross income, operating expenses, and resultant
net income over some future time period. Value is a reflection of future income expectations and
such elements are risky.
A determination of the proper discount and Capitalisation rates for the subject involved speaking
with investors and brokers of hotel properties throughout the country, discussing investment
parameters with other hospitality industry experts, and considering the results of several
published investment surveys.
We have selected a Discount Rate of 6.25% to our Day One valuation.
Discounted Cash Flow Model

Our valuation analysis and discounted cash flow model are presented on the following page.
Incorporated in our model are these assumptions and opinions.
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Projection Period: 10 years with sale/refinancing at beginning of the following

year.
Internal Rate of Return: We have utilised a discount rate of 6.25 percent (annually)
in this analysis.
Terminal Capitalisation Rate: We have utilised a terminal Capitalisation rate of 4.25
percent in this analysis. The terminal Capitalisation rate is
applied to the eleventh year net operating income.
The discounted cash flow analysis indicates a rounded market value of £250,000,000 (£1,570,000
per room).
We have allowed for purchaser’s costs of 6.8%.
Discounted Cash Flow
Cash Flows (Inflated GBP'000)
Period 1 2 3 4 5 6 7 8 9 10
Year ending December 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027
Total Revenue £31,667,270 £36,313,836 £39,113,660 £41,211,854 £42,295,140 £43,141,043 £44,003,864 £44,883,941 £45,781,620 £46,697,252
Net Operating Profit £6,512,460 £9,213,334 £11,023,278 £12,193,121 £12,667,796 £12,921,151 £13,179,575 £13,443,166 £13,712,029 £13,986,270
Running Yield (Net) 2.61% 3.69% 4.41% 4.88% 5.07% 5.17% 5.27% 5.38% 5.49% 5.60%
Capitalisation Rate 4.25%

Discount Rate 6.25%
Growth Factor 2.00%
Purchasers Costs 6.80%
Say £250,000,000
Value per bedroom £1,572,327
18.2. Market Value Retail

Rental Value
Rental value has been assessed on the basis of Market Rent, assuming a new lease drawn on
standard, effective full repairing and insuring provisions, for a term of 10 years with upwards only
rent reviews and incentives granted equivalent to 3 months’ rent.
Opinion of rental value
Market Rent: £3,603,121 pa
Rental evidence and justification
With particular regard to the evidence above we have based our opinion on £5,651 per sq m
(£525 psf ITZA) for all of the units with the exception of Lotus, where we have assumed a rate of
£5,382 or (£500 psf ITZA) which is in line with the November 2016 rent review.
Lotus was concluded at a lower rate owing to its extensive frontage to Glasshouse Street and its
hard frontage to Regent Street. This leaves the current occupier using the property “back to front”
in effect and is less desirable to retailers than having better frontage to Regent Street.
Good evidence is provided at 63 Regent Street, (Vilebrequin) which was regeared on 25 May
2016 at £545 per sq ft ITZA. Despite being directly opposite, it arguably provides better
accommodation due to its visibility. It cannot however be considered an arm’s length due to the
circumstances leading up the renegotiate which involved the landlord threatening to instigate a
24 July 2016 break option.
The letting to Pepe Jeans at 50/70 Regent Street in June 2016 provides arms length evidence at
£528 per sq ft ITZA but would now be considered historic.
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The best evidence is provided by the Barbour rent review at 73/77 Regent Street at £560 per sq
ft ITZA settled in December 2016. Like the Vilbrequin unit, it arguably provides better
accommodation due to visibility and there is the feeling that that market has marginally slowed
since the review. With this in mind we have maintained our opinion of market rent for the remaining
3 units at £525 per sq ft ITZA, waiting for the result of the review which should provide an uplift.
Capital Value
Unless stated otherwise, yields are expressed net of notional purchaser’s costs at c.6.50%.
Sales Evidence
We have included a table of recent investment transactions in our commentary on “The
Investment Market”.
Conclusion, Justification and Approach
The Crown Estate owns the freeholds of the properties on Regent Street and, although third
parties own a number of head leases that are sometimes traded (such as the subject property),
the volume of investment activity is very low.
Despite this, there is some evidence with Q1 2017’s sale of 10 Piccadilly, which was bought by
The Regent Street Partnership (The Crown and Norges Bank Real Estate Management). It sold
at £129m or 3.53% NIY and comprises 98,660 sq ft of office and retail. It is held long leasehold
for 68 years unexpired with 10% head rent and let for 6 year unexpired to a number of tenants.
While it has high asset management potential, it would not be considered as attractive as the
subject units which have a longer unexpired long lease and no gearing. With this in mind our
equivalent yield would be lower than this sale.
31 Bond Street and 332 Oxford Street which reflect yields at c.2.50% with no imminent reversion,
(in the case of Bond Street not until 2021). They are superior to the subject property which is
located on the weaker part of Regent Street and the equivalent yield would therefore be higher.
We have been advised by investment agency colleagues that an appropriate capitalisation rate
is within a range of 3.15% to 3.25%. However with a lease in the market (Lotus) and the unknown
quantity of a new tenant’s covenant, allied to a potential affordability issue for Wolford, (with rising
rents from the Mulberry letting), we are more comfortable at 3.25%.
We have therefore based our valuation on an equivalent yield basis (owing to the reversionary
nature of the income) at 3.25% which results in a contracted net initial yield of 1.88%, and a
running yield of 3.33% when the property is fully income producing in March 2018. (This is
following a 1 month void period for legals and a 3 month rent free period for fitting out the vacant
unit.)
It is also in line with the historic Conduit Street (a similar pitch to the lower part of Regent Street)
transaction which sold at 2.08% with an expected 3.00% reversion in 2018. Were the property
sold today it is our view that the reversion would be higher owing to rental growth making the 2
transactions comparable.
73
18.3. Opinion of Market Value

Hotel
Our opinion of the Market Value of the long leasehold interest in the property, as a fully-equipped
operational entity, having regard to trading potential, unencumbered by any lease or management
agreement, as at 31 December 2017, is:
£250,000,000
(Two Hundred and Fifty Million Pounds)
Retail
Our valuation calculations are shown in further detail within the Appendices.
In our opinion, the Market Value of the long leasehold interest in the Four Retail Units, as at 31
December 2017, is:
£100,000,000
(One Hundred Million Pounds)
This reflects an equivalent yield of 3.25%, an initial yield of 1.88%. It also equates to £68,438 per
sq m (6,358 per sq ft).
Hotel & Retail
In our opinion, the combined aggregate Market Value of the long leasehold interest in the hotel
and retail, as at 31 December 2017, is:
£350,000,000
(Three Hundred and Fifty Million Pounds)
74
Cushman & Wakefield | Barco Investments B.V. Appendix A: Photographs
APPENDIX A: PHOTOGRAPHS
Entry from Regent Street (View from Oscar Wilde Bar

Mezzanine)
Typical bedroom Typical bathroom
View of Piccadilly Circus from Dome Suite View of Celestine Suite

Terrace
75
Cushman & Wakefield | Barco Investments B.V. Appendix B – Glossary of Terms and Definitions
APPENDIX B – GLOSSARY OF TERMS AND

DEFINITIONS
Below we have listed a Glossary of Key Terms which are used throughout both the hotel industry
and within our valuation report.
Adjusted GOP AGOP - Gross Operating Profit after deduction of base management fees
Administrative and Comprises expenses associated with the payroll related expenses for employees
General classified as Administrative and General (A&G). A&G departments comprise the
manager’s office, accounting, cost control, purchasing and receiving, information
systems, security and HR.
Average Room Rate Average Room Rate (ARR) is the total rooms’ revenue (over whatever period)
divided by the number of rooms occupied It is also sometimes referred to as
Average Daily Rate (ADR).
Capex Capital Expenditure are funds used by an organisation to upgrade physical assets,
such as property and equipment.
EBITDA Earnings Before Interest, Taxation, Depreciation and Amortisation.
F&B Food & Beverage department. This is a specific cost centre for hotels and generally
includes sales, including revenue from the bar, room service and conference and
banqueting.
FF&E Reserve Furniture, fixtures and equipment reserve. This is usually a percentage of turnover
that is deducted each year as a sinking fund to ensure guest bedrooms, public
areas and back of house (including plant & machinery) are maintained.
Fixed Charges Includes Property Tax, Insurance, Management Fees, Other Non-Operating
Expenses, FF&E Reserve and Rent.
GOP Gross Operating Profit
Insurance Cost of insuring the building and contents, liability insurance and business
interruption premiums.
Internal Rate of The rate of interest at which all future cash flows must be discounted in order that
Return (IRR) the net present value of those cash flows, including the initial investment, should
be equal to zero.
Management Fees The cost of management services performed by a management company to

operate the property as a whole.
Net Operating Profit NOP is calculated as Gross Operating Profit less Fixed Charges.
76
Cushman & Wakefield | Barco Investments B.V. Appendix B – Glossary of Terms and Definitions
Occupancy Calculated as the number of rooms sold divided by the total number of available
rooms throughout the period being analysed.
Other Income Includes revenue generated from space rentals such as concessions or leased
space. Also includes revenue from laundry, spa, business centre, limousine and
other miscellaneous services provided by the hotel.
Other Income (F&B) This includes the sales of services and all products that are non consumable food
items within the F&B department, such as revenue from the sale of audiovisual
equipment, public room rentals and cover charges.
POMEC Property Operations & Maintenance & Energy Costs
Property Tax All taxes assessed against the property by the government.
Repairs & Includes the costs associated with the payroll, materials and third party costs
Maintenance associated with maintaining the property and contents at an operational standard.
RevPAR Revenue per available room or room yield is a measure of the revenue earned per
hotel room derived by dividing the total Rooms Revenue by the total number of
available rooms in a given period.
Room Revenue The revenue generated through the rental of rooms and suites to guests.
Sales & Marketing Includes the costs of property specific advertising, centralised/brand advertising
costs and payroll related to Sales & Marketing employees.
Total Revenue The sum revenues (net of sales tax) from all the operational departments,
including Rooms Revenue, F&B Revenue, Room Hire and other revenue.
Undistributed Expenses that are considered applicable to the entire property and are not able to
Expenses be appropriately split between the operating departments. Comprises of
Administrative & General, Sales & Marketing and Repairs & Maintenance.
77
Cushman & Wakefield | Barco Investments B.V. Letter of Consent
LETTER OF CONSENT
78
020 7152 5006 Tel direct
020 7152 5393 Fax direct
ian.thompson@eur.cushwake.com
The Directors
Barco Investments BV (UK Real Estate)
Rotcheild 46
Tel Aviv 66883
Israel
22 February 2018
Dear Sirs
Annual Accounts of Alrov and Lodging for Financial Year ending 31 December 2017
The Café Royal, Regent Street, London W1B 5EL, UK
We understand that you will be including a copy of our report and valuation in your Annual Accounts for year
ending 31 December 2017.
We give hereby give our consent to the inclusion of our report dated 22 February 2018 as an appendix, and to the
references to it and our name in your report, and in due course look forward to receiving a copy of the published
document.
In addition, we hereby give our consent that this letter (together with our report), be included in the Company’s
published prospectus, and to any other report published by the Company from time to time.
We would however reiterate that in accordance with our terms and conditions entered into between us our report
can only be relied upon by the addressee, in this case Alrov Property and Lodging.
Yours faithfully
IAN M THOMPSON MRICS

PARTNER
For and on Behalf of Cushman & Wakefield LLP
Cushman & Wakefield LLP is a limited liability partnership registered in England & Wales with registration number OC328588. The term partner is used to
refer to a member of Cushman & Wakefield LLP or an employee or consultant with equivalent standing and qualifications. A list of members of the LLP is
open to inspection at our registered office at 43/45 Portman Square, London, W1A 3BG. Regulated by the Royal Institution of Chartered Surveyors.

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Valuation Of:: Hotel Café Royal London

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Valuation of:

Hotel Café Royal London

Barco Investments B.V.

HOTEL CAFÉ ROYAL, 68 REGENT STREET, LONDON

Historic Trading (Year Ending December)

Number of Rooms 159 159 159 159 159

TOTAL SALES 20,698,570 31,597,869 23,121,043 32,056,531 27,032,715

FOOD & BEVERAGE

GROSS OPERATING INCOME 5,538,442 14,697,430 7,944,963 14,737,248 11,418,025

GROSS OPERATING PROFIT - 1,180,925 7,569,608 838,348 7,039,803 3,679,119

LESS FIXED COSTS

NET OPERATING PROFIT -3,682,984 4,404,190 -2,308,565 3,845,202 1,628,319

C&W Trading Projections

Year 2018 2019 2020 2021 2022

Number of Rooms 159 159 159 159 159

TOTAL SALES 31,667,270 36,313,836 39,113,660 41,211,854 42,295,140

FOOD & BEVERAGE

GROSS OPERATING INCOME 17,622,270 21,421,573 23,738,576 25,343,000 26,108,909

UNDISTRIBUTED COSTS 6,750,000 7,036,689 7,225,976 7,419,079 7,567,460

GROSS OPERATING PROFIT 10,872,270 14,384,885 16,512,599 17,923,922 18,541,449

LESS FIXED COSTS

NET OPERATING PROFIT 6,512,460 9,213,334 11,023,278 12,193,121 12,667,796

Market Value and Yields (Hotel)

Valuation date 31 December 2017

Liquidity Very Good.

Valuation date 31 December 2017

Market Value Hotel £100,000,000

Valuation date 31 December 2017

Key Investment / Market Considerations for Loan Security

Strictly Confidential – For Addressee Only

To: Barco Investments B.V.

Attention: Aharon Rabinovitz

Property: Hotel Café Royal, 68 Regent Street, London, W1B 4DY

Report date: 22/02/2018

Valuation date: 31/12/2017

Compliance with RICS Valuation – Global Standards

Status of Valuer and Conflicts of Interest

Fair Value - IFRS

Taxation and costs

£350,000,000 (Three Hundred and Fifty Million pounds)

Ian Thompson MRICS John O’Neill MRICS

1.2. Demographics and Local Economy

2. Description & Accommodation

Category Unit Count Area (sq m)

Mansard Deluxe Rooms 9 36

Total 159 7,232

All rooms include the following details:

 Leading design by David Chipperfield

 Complimentary high speed wireless internet

 Flat-screen TV and HD entertainment, digital cable and movies on demand

 Mirror TV in all guest bathrooms

 Nespresso Coffee machine, incorporating tea making facilities provided only to

 24 hour room & butler service

 Micro cotton towels and Floris toiletries

 Personal concierge service

Food & Beverage

Ten room 100

Grill & Domino rooms 95

Café Royal Club 174

Café 1865 at Café Royal 40

Room Capacity Area (Sq m)

Pompadour Ballroom 170 176

Queensberry Suite 170 141