Luxury hotel deals
Increasing outbound tourism suggests positive, stable returns
Stable investment returns and outbound tourism have prompted Chinese companies to purchase more overseas luxury properties.
Stable investment returns and increasing Chinese outbound tourism have prompted Chinese companies to purchase more overseas luxury properties in recent years, some investment experts said.
Kai Yuan Holdings Ltd, a Hong Kong-listed investment holding company focusing on industrial investments, announced onMonday that it would spend 344.512 million euros ($471.94 million) on the property and operation of Paris Marriott Hotel Champs-Elysees, the only five-star hotel located on the Champs-Elysees.
In mid-2013, Fosun International Ltd, an investment group for insurance, industrial operations, investment and asset management based in Shanghai, also made a joint proposal with Ardian, a private equity firm, to purchase 80 percent of the shares of Club Mediterranee SA, a global resort hotel group based in France, and the two purchasers already had 20 percent shares of ClubMed.
The fast-growing Chinese outbound tourists group and their strong consumption power drew Chinese investors to the overseas hotel properties, some analysts said.
“Travel is a driving factor for Chinese companies purchasing hotel properties in tourism destinations,” said Xia Yangyang, director of international capital group at Jones Lang LaSalle China.
The number of Chinese residents traveling overseas in 2013 was 98.19 million persontrips, with an 18 percent yearon-year growth, and their consumption increased by 26.8 percent compared with 2012 to $128.7 billion in 2013, the China Tourism Academy said in statement.
Chinese investors also try to get a piece of pie from outbound tourism market and their hotels will be attractive for Chinese travelers, as they could provide more Chinese services, such as Mandarin services and Chinese food, Xia said.
Kai Yuan Holdings said in its announcement that once the acquisition is completed, more marketing efforts would be focused on the China market. “The group believes there is potential to attract more Chinese customers and further improve the current occupancy rate of the hotel,” Kai Yuan Holdings said.
Some smaller privatelyowned companies also invested huge amounts into the overseas hotel properties.
Jiangsu GPRO Group Co Ltd, a privately owned company involved in manufacturing, real estate and modern services industries based in Jiangsu province, made the largest investment by a Chinese company in Spain this March by purchasing a fivestar hotel for 50 million euros.
Sichuan Xinglida Group Industry Co Ltd, a privatelyowned real estate investment company based in Sichuan province, spent $47 million on aMarriott hotel inLos Angeles in late 2013.
Actually, the tendency of Chinese companies going overseas started from 2012, when they started to diversify their business and made hedges through overseas investment.
“Real estate is the main industry for Chinese companies to invest into hotel property is just a type of real estates,” said Xia from LaSalle.
The gateway cities, such as Paris, London, New York and Los Angeles, are still the first options for the Chinese investors, Xia said, which have strong markets.
The real estate market, including hotel property market, in the main cities of Europe and theUS will continue going up, as the economy there is recovering, he said.
Compared with other types of real estate, hotel properties can provide more stable returns, if they are well managed. Most of the hotel properties Chinese investors purchased still have management contracts with international hotel management companies and there is little management risk, Xia said.
The management contract between Paris Marriott Hotel Champs-Elysees and Marriott Group will be continue until 2030 and after this period, the contract will be renewed automatically for three times with 10 years each time, according to the announcement of Kai YuanHoldings.
The hotel located in the central of Paris has an occupancy rate of over 88 percent over the past three years, “which will provide a stable revenue stream to the group”, Kai Yuan Holdings said.
Meanwhile, some Chinese companies have tried to build up their own brands through acquisitions of overseas hotel properties. Dalian Wanda Group, the company of the richest man in China, will establish 10 hotels in overseas markets in the next eight to 10 years.
Cities like New York, Paris, Moscow and New Delhi may be Wanda’s destinations and the group has already invested 700 million pounds into a new hotel in London, said Ilja Poepper, vice-president of sales and marketing ofWanda Hotels & Resorts.
Different from other Chinese investors, Wanda is building up its own management team and its ambition is to be the world’s largest luxury hotel owner and operator by 2020.
There is much development room for Chinese owned hotel brands for historical reasons, and the rising outbound travelers will promote more Chinese brands overseas, said Daniel Voellm, managing director of the Hong Kong branch of HVS Global Hospitality Services, a hospitality industry consulting firm based in NewYork.