EUROPE OVERVIEW OPERATIONS REVIEW RECOVERY REMAINS STRONG AS TRAVEL ENTHUSIASM CONTINUES TO RISE Europe, being the world’s most visited destination region, saw strong tourism levels in 2023. In total, Europe welcomed 700 million arrivals in 2023, reaching 94% of pre-pandemic levels1. The upward performance was supported by robust intra-regional demand as well as travellers from the United States leveraging favourable exchange rates1,2. Western Europe reflected an even stronger recovery in international visitor arrivals, reaching 97% of pre-pandemic levels. The European travel sector demonstrated its resilience, registering growth despite challenges such as high inflation, tighter financial conditions and strikes. While the volume of travellers from certain long-haul source markets such as China and Japan may require more time to fully return to pre-COVID-19 levels, the progress made in 2023 was encouraging2. For the full year of 2023, market RevPAR for Europe grew by 20% YoY, surpassing pre-COVID-19 levels. The growth in RevPAR was driven primarily by high ADR that exceeded 2019 levels, whilst average occupancy remained below pre-pandemic comparables. Globally, France and Ireland were amongst the top five countries in RevPAR performance in 2023. Ireland and the UK ranked first and second in terms of occupancy, while France recorded the highest ADR3. In line with the industry, CLAS’ properties in Europe continued to surpass pre-COVID-19 performance levels in 2023, primarily led by higher ADR. PROGRESSING WITH CAUTIOUS OPTIMISM AS GROWTH INCOME STREAMS CAPTURE UPSIDE AND STABLE INCOME STREAMS MITIGATE HEADWINDS International visitor arrivals to Europe are expected to achieve 2019 levels by 20242, notwithstanding ongoing economic and geopolitical headwinds1. Domestic and short-haul leisure travel will continue to be the primary drivers of demand in 2024, whilst further upside will come from the ongoing return of international long-haul leisure travel from Asian markets which had lagged the others. In particular, Chinese outbound tourist demand in Europe is projected to return further in 20244. Despite uncertain economic prospects and new hotel supply in certain parts of Europe, room rates are still trending upwards in 2024, although at a reduced velocity compared to 20235. Market RevPAR growth is forecasted to ease to a high single-digit rate in 20244. Given the outlook for sustained demand and moderating inflation, 2024 is anticipated to be a year of profit increases and margin expansion for the industry4. In Paris, the 2024 Summer Olympics is expected to bring about a boost to the performance of properties in the French capital. As of January 2024, forward bookings for hotels had already reflected occupancy trending above 50% for almost the entire period of the Summer Olympics, with significant increases in room rates3. Other major sporting and entertainment events that are expected to drive visitor interest and provide an uplift include UEFA Euro 2024 in Germany, as well as major music tours in the UK and Western Europe. Forward bookings at CLAS’ European properties are healthy, supported by demand across all segments. Our properties in France are expected to benefit from the Paris Olympics, as the variable rent components under the master leases allow us to capture the potential upside. Our properties in the UK, Belgium, Ireland and Spain, which are under MCMGI, are similarly able to capture the upside from growth in market demand, while the minimum guaranteed income provides downside protection. The master leases in Germany are predominantly indexed to the German CPI index, which provides for inflation adjustments YoY. 1 Source: World Tourism Organization (2024) 2 Source: European Travel Commission (2023 and 2024) 3 Source: STR (2024) 4 Source: CBRE (2024) 5 Source: American Express Global Business Travel (2024) ANNUAL REPORT 2023 49 Overview Leadership Portfolio & Performance Sustainability & Governance Financial Statements and Other Information
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