2015 CHAT Shanghai had the privilege to invite five well-known executives from the capital sector to share their opinions regarding restructure of the hospitality industry.
First of all, Mr. Hong Chen (President & CEO, The Hina Group) pointed out that M&A (merger and acquisition) in the Internet industry had been highly active recently, and the Hina Group itself recorded transactions totaled USD 7 billion in this specific industry in the past 20 months. As for the hospitality industry, Mr. Chen believes that restructure is inevitable, considering the following factors: Firstly, restructure of hotels is easy to implement, as it involves both manpower and properties, and several properties can be operated together more efficiently compared to stand alone property. Secondly, compared to other industries, investment required for restructure in the hospitality industry is normally not high. Internet industry, for example, commonly sees M&A deals valued more than USD 10 billion due to their close-loop strategy, while M&A deals between hotel groups normally are less than USD 2 billion. Thirdly, the current hotel management companies will tend to form larger groups, as these groups will allow for multiple brands, which is consistent with M&A principles. In addition, Mr. Chen believes various types of capital operations can be frequently seen during the process of separating heavy assets and light assets. In general, capital will be increasingly influential in restructuring the hospitality industry.
Next, Mr. Stephen Chen (Managing Director, Infinity Global Real Estate Advisors Limited) started sharing his opinion by asking a question: as heavy asset investment targets, how can hotels attract investors to own and hold them instead of regarding them as liabilities? He thinks hotel managers should be focusing only on daily hotel operation details in order to create stable cash flow and investment returns. In other words, if managers were able to provide same amount of returns to the investors every year for five years or even ten years, the relation between two parties will be more like ‘tenant and landlord’ with mutual trust and tacit cooperation. Additionally, hotel is a more diversified type of business with longer leasing period, thus it is easy to form its own ‘living circle’. Taking WeWork as an example of living circle, WeWork intends to provide more flexible, more diversified, and more lively working space for technology entrepreneurs. The business model has succeeded in many cities, and some of the projects’ actual returns have been as triple as their fair rental income. Currently, the creators of WeWork are moving one step forward to probe their next concept – WeLive that offers a living circle for these entrepreneurs to actually stay and live in the building. Recently, some office-building owners in New York City have shown their interests in such concepts. In short, Mr. Chen thinks that hotels do not necessarily need to operate in traditional means; any innovative business model that creates healthy and stable returns for investors should be taken into consideration.
Subsequently, Mr. Jiannong Qian (Vice President, FOSUN) shared FOSUN’s experience on offshore acquisitions. As the key person directly involved into some of the well-known acquisition deals recently, Mr. Qian thinks global M&A is the future trend, as globalization of tourism and hospitality will inevitably lead to offshore investment, while advanced management experiences are introduced to China. FOSUN presently focuses more on leisure hotel products, tourism destination and distribution channel development rather than urban hotels and budget hotels which is already a quite mutual market in China. As such, the group’s previous M&A deals include various links of tourism industry such as resort brands (Club Med and Atlantis), travel agency and Airline (Thomas Cook), OTA (MakeMyTrip) etc.. In addition, Mr. Qian emphasized on the significance of developing tourism ecosystem, for example, FOSUN has invested in the well-known Canadian entertainment company Cirque du Soleil and a Taiwanese souvenir bakery company called Vigor Kobo to create its own tourism ecosystem. Overall, Mr. Qian believes under a sustainable tourism ecosystem, hotels can be effectively combined with other types of real estates, and eventually lead to a healthy return level.
Last but not least, Mr. Teddy Zhang (Managing Director, Thayer Lodging Group) described his experience on capital changes by introducing two trends: Firstly, capital values and financing costs are changing. As the key person involved in Jinjiang’s recent M&A deals, Mr. Zhang illustrated that change of capital values and financing costs could be significantly influential to M&A deals by using two examples: how Jinjiang privatized Interstate with low financing costs during global financial crisis, as well as the recent acquisition of Louvre with no costs due to capital value changes caused by European central government’s quantitative easing policy. Secondly, technology is changing the hotel brand, product and service. For examples, mobile technology enables guests to easily understand hotel’s product and service, which in fact weakens the guests’ reliance on brand effect. In addition, Mr. Zhang insists that a hotel management company can only deal with guests directly when it reaches a certain level of scale. Until then, the hotel management company can only rely on OTA booking channel, and it will become ‘OEM of the service industry’. Looking forward, Mr. Zhang believes future hotel companies will need to adapt these trends into all positioning, product and service levels, resulting in benefits to guests, investors, managers and employees.
As the moderator of the session, Mr. Liangyu He (Managing Director, GSUM Capital Management Co., Ltd.) then summarized the guest speakers’ opinions. Capital sector is changing the hospitality industry, and the influence will be increasingly strong in the future. In this context, hospitality industry will need to find its precise positioning and unique operating model, and be prepared to embrace the capital world.
Horwath HTL has created a new brand identity – CHAT, tailored for China’s hotel and tourism industry! CHAT, the abbreviation for China Hotels And Tourism, encourages industry people to gather, create dialogue and network through the platform, as well as exchange and share experience and knowledge. CHAT Beijing is an enhancement of the “China Hotel Development and Financing Conference”, which has been held for eleven years in Beijing. We further focus the conference specifically on hotel and tourism development and investment issues. There are 650 delegates attended 2015 CHAT Beijing with the largest segment being domestic hotel and tourism developers and owners. CHAT Shanghai is an upgrade of our annual “China Hotel Market Review and Outlook Seminar”, which has been held over the past six years. CHAT Shanghai focus on hotel asset management and operations. 510 delegates attended CHAT Shanghai in September 2015. CHAT Beijing and CHAT Shanghai held in Spring and Autumn respectively cover the full hotel and tourism business cycle from development and investment to asset management and operations. CHAT will enable you to achieve successful business development through its various powerful platforms!
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