On the other hand, several terrorist attacks and demonstrations in France and other European countries following the Israel-Hamas war which began in October 2023 partially dampened the demand for trips to Paris and other European capitals4. Tour operators and high-end hospitality players saw some cancellations amid fears of terrorism4. As a whole, the operational performance of CLAS’ France properties for FY 2023 was robust and surpassed pre-COVID-19 levels on higher ADR. The growth was primarily led by the Paris properties, and driven by a mix of leisure, corporate and group bookings, with additional uplift from the Paris Air Show in June, the Rugby World Cup in September and Fashion Week in September and October. Total revenue from France increased 22% YoY in EUR terms in FY 2023, mainly due to higher variable rent at the properties and full year contribution from La Clef Tour Eiffel Paris, partially offset by the divestment of the four properties. On a same-store basis5, total revenue increased 6% YoY. 2024 OUTLOOK The French government lowered its 2024 GDP forecast to 1% from its earlier estimation of 1.4% as the wars in Ukraine and Gaza and a slowdown at its top trading partners darkened the outlook for France6. Economic activity is expected to gather momentum in the second half of 2024 and private consumption is set to drive GDP growth on the back of declining inflation1. France is set to retain its position as the world’s most popular destination for international arrivals in 2024. Airlines are also ramping up their capacities to match the growing demand from around the world, with the number of seats poised to surpass 2019 levels in 20247. Notably, the 2024 Summer Olympics held in Paris from July to August 2024 bodes well for accommodation providers with around 15 million spectators and 3 million additional visitors expected in Paris, increasing tourism spending by up to EUR4 billion8. As at January 2024, hotels and rental apartments in Paris have doubled or tripled their typical summer rates6. Occupancy on the books for almost the entire event period is also trending above the 50% level as at January 2024, and will continue to increase as the event draws nearer9. Apart from Paris, the sporting event will also extend to the other cities such as Lyon, Saint-Etienne, Nice and Bordeaux. The Lyon Stadium, France’s third largest stadium, will be hosting the football tournament10. In January 2024, the French government tripled the tourist tax on hotels and other accommodations, which may impact tourism businesses and the competitiveness of France as a leisure tourism destination11. Geopolitical tensions and security concerns may also, to some extent, weigh on France’s appeal and the performance of its hospitality market4. CLAS’ master leases in France, which predominantly have fixed and variable rent components, are well-positioned to capture the upside from the expected increase in demand in 2024, while having downside protection against potential headwinds. In 2023, seven of the master leases were renewed on a revised rent structure which was based on the higher of fixed rent and variable rent. The fixed rent is indexed to the French commercial lease index, and the rent is automatically increased or decreased accordingly each year. The variable rent is based on a percentage of the property’s total revenue. The total rent for all seven master leases is projected to be 28% higher in FY 2024 under the revised structure, according to an independent consultant. CLAS and the master lessees will co-share furniture, fixtures, and equipment capital expenditure during renovation. The Olympics season aside, CLAS expects continued healthy performance during the rest of the year. ADR are expected to normalise from the current highs, which are about 20% above pre-pandemic levels on a same-store basis5. Leisure demand is expected to remain robust, and demand from the corporate segment, which has lagged in recovery, is expected to strengthen. Two properties – Citadines Les Halles Paris and La Clef Tour Eiffel Paris – have been undergoing refurbishment to their apartment units and common areas from 2Q 2023 and 3Q 2023 respectively. The renovation capital expenditure for both properties are largely borne by the master lessees. The two properties have remained operational during the AEIs, and CLAS continues to receive rent. The AEIs are expected to be completed in 2Q 2024, ahead of the Olympics. 5 Excluding Citadines Castellane Marseille, Citadines City Centre Lille, Citadines Croisette Cannes and Citadines Prado Chanot Marseille, which were divested in September 2023, and La Clef Tour Eiffel Paris, which was acquired in November 2022. 6 Source: The Business Times (2024) 7 Source: World Travel & Tourism Council (2024) 8 Source: Euromonitor International (2023) 9 Source: STR (2024) 10 Source: 2024 Paris Olympics Official Website (2024) 11 Source: The Connexion (2023) ANNUAL REPORT 2023 51 Overview Leadership Portfolio & Performance Sustainability & Governance Financial Statements and Other Information
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