Mike Haney, Newcastle Limited

Achieving Maximum Results from Your Hostel

Perspective

Newcastle Limited q Real estate advisor & investor

q $400 million portfolio

q 2,000 apartments

q 300,000 SF of retail

q No hostel operating experience

Chicago Hostel Scene q 8 million people in the Chicago area

q 36 million visitors annually

q 3 hostels – 1,000 beds

q High barriers to entry

Chicago Getaway Hostel q Chicago’s Lincoln Park neighborhood

q Built in 1928

q 115 rooms with 338 beds

q Room mix: dorms, private rooms, private rooms with bathrooms q  88 dorm beds q  64 private rooms with shared bathrooms q  40 private rooms with bathrooms

Hostel Background q Small part of 2008 portfolio purchase

q Lack of experience = imperfect due diligence q Hostel product & guests

q Revenue & marketing

q Operations & costs

q Retained previous management

q Declining performance in all divisions

Challenges

Challenges q Aging Infrastructure

q Unattractive common areas and rooms

q Poor management

q Bedbugs

q Terrible online reviews

q Falling NOI

Aging Infrastructure

Lobby

“Computer Room”

Common Room

Kitchen

Rooms

Rooms

Poor Management q No staff training or standards

q No focus on guest satisfaction

q Oblivious to reputation

q No rate or occupancy management

q Lack of housekeeping oversight

q Unmanaged bedbug problem

Terrible Online Reviews

“I have to say it's the worst place I have ever stayed and actually reduced me to tears on entering our room!!!”

“The manager didn't care about our complaint or anyone else's for that matter. We overheard many complaints during the course our of stay.”

“Trust me, it may be a nice location but the place is a dump. Spend 15 extra bucks and go down the road to a clean place with great employees. I was very disappointed.”

Comp  1   Comp  2  Hostelworld   65%   86%   76%  Hostelbookers   67%   90%   71%  Hostels.com   71%   85%   78%  

Terrible Online Reviews

Falling NOI

$200,000

$300,000

$400,000

$500,000

$600,000

$700,000

$800,000

$900,000

2005 2006 2007 2008 2009

Realization of Problem

Hostel Purchase

The Turnaround

Approach

q Went to school

q Focused on key business activities q  Operations q  Marketing q  Facilities

q Used hostel guest reviews as a guide

Guest Reviews

Turnaround Strategy

Operations   Marketing   Facilities   Character   X   X   X   Security   X   X   Location   X   Staff   X   Fun   X   X   Cleanliness   X   X   Facilities   X   X   Value   X    X   X  

Character q Foundation of complete re-branding

q Vintage building

q Relevant, memorable theme: 20’s gangsters

q Boutique hotel with hostel attitude

q High level of service

¨  Goal: Offering a great Chicago experience

Lobby

Security q Electronic keycard system

q Electronic room lock system

q 22-camera security system

q Improved nighttime staffing

Keycard Access

Location q Perceptions: local vs. visitor

q Upscale Lincoln Park neighborhood

q Great Chicago nightlife nearby

q Close to transportation, beach, Wrigley

q Communicate the benefits

q Make the neighborhood experience accessible

Nightlife

Staff q New strategic focus:

q  Guest satisfaction q  Online reviews q  Stays

q Training & Tools

q Organization & delegation

q Incentive-based compensation

q Benefits

Front Desk

Fun q Design that enhances guest interaction

q  Activity-based spaces q  Options for socializing q  Outdoor space

q On-premises events q  Breakfast q  BBQ q  Special events

q Off-premises events q  Blues Clubs q  Pub crawl q  Bike Tours

Kitchen

TV Lounge

Reading Room

Music Room

Outdoor Patio

On-Premises Events

Off-Premises Events

Cleanliness q Standards

q Training

q Supervision

q Maintenance-minded renovations

q Bedbug protocol

Cleanliness

Facilities q Memorable common areas

q Layout that supports key functions

q Comfortable, clean rooms

q Design that reflects the demographic

Great Room

Rooms

Value q Boutique hotel style at hostel price

q Hostel attitude

q Exceptional customer service

q Everything included q  Breakfast q  Wi-Fi / Computer / Printing q  Luggage storage q  Social events

Marketing q Re-branded the hostel

q New blog-based website

q Social Media (Facebook & Twitter)

q Relationships with “feeder” organizations

q Focus on guest satisfaction & referrals

Results

Reviews

“This is an outstanding hostel that exceeds all expectations for cleanliness, security, reasonable rates, and professionalism of the staff! I have absolutely no problem recommending this hostel to friends I know, and would certainly stay here again!”

“Far and away the best hostel I have ever stayed at, and I've stayed in over 20!”

“One of the best hostels I have stayed at. Good location, fresh sheets and towels everyday, friendly staff, hostel events, sociable, best kitchen facilities I've seen at a hostel.”

CGH   1   2  Hostelworld   89%   87%   77%  Hostelbookers   92%   90%   81%  Hostels.com   92%   88%   81%  

Guest Ratings

70.0%

75.0%

80.0%

85.0%

90.0%

95.0%

100.0%

App

rova

l Per

cent

age

Monthly Average 6 Mo. Trailing Avgerage

NOI

$-

$200,000

$400,000

$600,000

$800,000

$1,000,000

$1,200,000

$1,400,000

2005 2006 2007 2008 2009 2010 2011

Hostel Purchase

Realization of Problem

Opportunities q Renovate unused space to increase bed count

q Corporate and institutional partnerships

q Explore food and beverage sales

Applying Our Approach q Use guest rating system as a guide

q Explore how all areas of business contribute q  Marketing q  Operations q  Facilities

q Focus on guest satisfaction

q Get the word out