Caribbean Hospitality Update by EY, Robbie Karver

Caribbean Market Overview Urban Land Institute Miami Meeting Feb 13 2019 Prepared by EY

Robert Karver Senior Manager Corporate Real Estate Advisory Services T +1 305 415 1347 F +1 866 572 4912 E robert.karver@ey.com

14 February 2019 | DRAFT

Caribbean market overview

Caribbean visitation ►

► ►

►

►

►

►

►

Global international air travel grew a strong 6.7% in 2017 relative to 2016 to reach a total of 1.3 billion passengers.

Forecasts predict continued growth in 2018 of 4% to 5%.

The Caribbean has observed consecutive years of visitation increases, with arrivals growth reaching a peak of 8.1% in 2015, outpacing for the first time in history all other major global regions in growth.

Over this same period, foreign visitor spending for the region grew 5.9% compared to the global average of 2.4%.

Increased travel is due to an increase in flights to many Caribbean destinations, lowering travel costs, and the improving US economy driving a rise in disposable incomes (50% of demand is from the US).

New routes generally more focused on English-speaking markets within a three-hour fly time window (i.e. Grand Cayman, Aruba, Jamaica, Bahamas).

Leisure travelers are becoming increasingly interested in destinations that cater more towards an experiential focus, including cultural and experiential activities (as opposed to traditional destinations only featuring sun and beach). This is particularly strong among more affluent travelers.

47% of the top five percent of US incomes plan to travel to the Caribbean in the coming 12-24 months, compared to just 33% of all U.S. travelers.

International Tourist Arrivals by Region (% Change YOY) 2013 – 2017

Europe

4.80%

1.70%

4.80%

2.40%

5Y CAGR 8.40% 4.39%

Asia Pacific Americas (Total) Caribbean

6.80%

6.10%

5.40%

7.70%

5.80%

6.36%

3.40%

8.50%

5.90%

3.70%

2.90%

4.86%

1.80%

5.50%

8.10%

4.70%

4.10%

4.82%

Africa

5.60%

0.60%

-2.90%

7.60%

7.80%

3.65%

Middle East

-2.90%

8.70%

0.60%

-2.40%

4.80%

1.67%

World/Total

4.70%

4.00%

4.50%

3.90%

6.70%

4.76%

Region

2013

2014

2015

2016

2017

Source: WTO

Reliance Restricted | Page 2

14 February 2019 | DRAFT

Caribbean market overview

Caribbean historical lodging performance

Luxury lodging in the Caribbean ►

►

►

From 2012 to 2015 Caribbean lodging market observed continuous occupancy increases, reaching 68.3% in 2015 (peak) – many consider this a structural ceiling in the Caribbean.

Slight decrease in occupancy in 2016 due to Zika – quickly recovered by 2017/18 (impact was more pronounced in ADR, whose growth at a CAGR of 2.6% from 2012 and 2018 has been more muted).

Although luxury lodging supply in the Caribbean accounts for only 20% available rooms according to STR, 43% of pipeline inventory is upperupscale or luxury, as strong historic growth spurs brand and investor interest.

Source: STR

Reliance Restricted | Page 3

14 February 2019 | DRAFT

Caribbean market overview

Key Trends and thoughts ► Strong

visitation growth driving renewed interest in the region from all players ► Performance is actually doing pretty well - ! ► Improved visitation and security (reputation) relative other competing destinations (i.e. Mexico) ► Diversification in product – including hotel and experiences (i.e. shore excursions) ► Access, access and more access ► US becoming more mature; key equity and debt (!!) starting to chase yields… and when they chase yields, they usually find themselves in the Caribbean ► Caution - ! Private equity money in the Caribbean sometimes means the run of good years is nearing an end. Expect a softening market but lack of oversupply likely to mean this slowdown is less dramatic that ’09 and ’10 ► Always ‘supply concerns’ but new supply rarely gets built; so is it really a problem - ? ► Baha Mar has…. Not impacted the region as much as we thought it might - ? ► Operations continue to be challenging; costs and quality of labor – enough to go around - ? ► What to do about Puerto Rico? Well… the hotel market was (and continues to) actually do pretty well - ! ► CIP Program (Citizenships by Investment) appears to be nearing an end… what will become of projects that are ‘stalled’?

Reliance Restricted | Page 4

EY | Assurance | Tax | Transactions | Advisory About EY EY is a global leader in assurance, tax, transaction and advisory services. The insights and quality services we deliver help build trust and confidence in the capital markets and in economies the world over. We develop outstanding leaders who team to deliver on our promises to all of our stakeholders. In so doing, we play a critical role in building a better working world for our people, for our clients and for our communities.

EY refers to the global organization, and may refer to one or more, of the member firms of Ernst & Young Global Limited, each of which is a separate legal entity.

Ernst & Young Global Limited, a UK company limited by guarantee, does not provide services to clients. For more information about our organization, please visit ey.com.

Ernst & Young LLP is a client-serving member firm of Ernst & Young Global Limited operating in the US. Š 2019 Ernst & Young LLP. All Rights Reserved.

1505-1452372 ey.com