20170926-DBS_Group-Hong_Kong_Hotel_Sector_44页_930kb

Asian Insights SparX: Hong Kong Hotel Sector Summary

Core Content

This report provides an in-depth analysis of the Hong Kong hotel sector, focusing on the recovery of inbound tourism, the growth in hotel supply, and the potential redevelopment of hotels into commercial properties. It highlights the market dynamics, key players, and investment opportunities in the sector.

Main Points

• Inbound Tourism Recovery:

  • Visitor arrivals to Hong Kong grew by 2.4% in 7M17, driven mainly by a 4.9% increase in overnight visitors, especially from Mainland China.
  • For the full year of 2017, visitor arrivals are projected to grow by 2.4% to 58 million, with 2.5% growth in Mainland China arrivals and 2% for other regions.
  • The sector is expected to grow at a 4% CAGR from 2017-2021, with both overnight visitors and day-trippers showing similar increases.

• Hotel Occupancy and RevPAR:

  • Hotel occupancy rose to 88% in 7M17, up 3 ppts year-on-year.
  • Medium-tariff hotels (three-star) showed a significant improvement, with 6 ppts increase in occupancy and 15% rebound in RevPAR.
  • High-tariff A (five-star) hotels faced rate pressure, with 5.7% decline in room rates and 2.2% decline in RevPAR in 1H17.
  • Occupancy is forecast to remain high at 89-91% in 2018-2021, supporting room rate and RevPAR growth.

• Hotel Supply Growth:

  • Total hotel supply is expected to grow at a 5-year CAGR of 4.3% from 2016 to 2021, faster than the previous period (2011-2016: 3.6%).
  • The growth in supply is anticipated to be moderated by the redevelopment of well-located hotels into commercial or office spaces.
  • If The Excelsior, J Plus, and Crowne Plaza Hong Kong Causeway Bay are redeveloped, hotel inventory could be reduced by 1,200 rooms or 12%, which would help maintain occupancy and RevPAR.

• Hotel Investment Market:

  • The hotel investment market has seen a revival since early 2017, with a wide range of buyers, including local investors and Chinese developers.
  • Initial property yields are relatively low, around 4% or below, especially for hotels intended for commercial redevelopment.
  • Some hotels are being sold for redevelopment, such as Newton Inn, J Plus, and The Excelsior, which could lead to a shift in the supply structure and potentially increase property values.

• Key Players and Projects:

  • Far East Consortium (35.HK) is a major beneficiary of the sector recovery and has expanded its portfolio with new hotels like Silka Tsuen Wan.
  • Langham Hospitality Investments (1270.HK) is developing hotels in Kowloon Peninsula.
  • Harbour Centre Development (51.HK) is building The Murray and Niccolo, which will become the flagship of the Niccolo brand.
  • New World Development (17.HK) is constructing a Rosewood branded hotel in Tsim Sha Tsui.
  • Cheung Kong Property (1113.HK) and SHKP (16.HK) are developing two large hotels in North Point.
  • Regal REIT (1881.HK) acquired icclub Ma Tau Wai Hotel in To Kwa Wan for HK$1.36b.
  • Henderson Land (12.HK) exited the hotel industry by selling Newton Inn and Newton Place Hotel.

Key Information

• Hotel Market Trends:

  • The market is showing signs of recovery, with high occupancy and RevPAR growth expected.
  • Commercial property values are buoyant, encouraging hotel owners to redevelop properties for office or retail use.

• Selected Hotel Transactions (as of 26 Sep 2017):

Investment Outlook

• The report recommends BUY for Far East Consortium and Langham Hospitality Investments, highlighting their strategic positions and potential for growth.
• The revival of the hotel investment market is expected to continue, driven by both demand and the potential for redevelopment.
• The redevelopment of well-located hotels into commercial properties is anticipated to moderate supply growth and support RevPAR.

Conclusion

The Hong Kong hotel sector is on a recovery path, supported by a rebound in inbound tourism and high occupancy levels. While supply is expected to grow, the potential for redevelopment into commercial spaces may temper this growth and support long-term profitability. Far East Consortium and Langham Hospitality Investments are positioned to benefit from this recovery, with the investment market showing renewed interest.