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21 Jun, 2004

Thailand Among Four “Favourite” Markets for Hotel Investors

Thailand has been described as one of the four “favourite” markets for hotel investors in the year ahead, along with China, Japan and Australia.

At a hotel investment conference in Singapore last month, Scott Hetherington, Managing Director Asia, Jones Lang LaSalle Hotels, said the Thai markets have recovered from the affects of SARS and Bird Flu.

“Importantly domestic investors are prime movers in the investment markets, but we also note regional and international groups have a strong appetite to acquire assets. Transactions have been completed and further are expected in the key markets of Bangkok, Phuket, Pattaya and Hua Hin over the next 12 to 18 months.

“The resort markets, lead by Phuket, are witnessing new developments and re-branding of hotels as occupancies and average room rates enjoy an upward trend.”

Mr. Hetherington also cited Thailand’s compounded average annual growth of 4.6% in visitor arrivals between 1998-2003, strong tourism product, improving infrastructure, aggressive marketing and liquid investment market comprising of local, regional and international investors.

He identified Bangkok and Phuket as the markets to watch, noting the better accessibility being provided by budget airlines and further improvements which will come when the new Bangkok airport opens. He noted that several new brands are entering the Phuket market, namely Raffles, Conrad, Crowne Plaza and Park Plaza, among others.

Citing specific examples of recent sales in Thailand, Mr. Hetherington mentioned the Garden Beach Pattaya as an “interesting example of an international Opportunity Fund acquiring a portfolio of non-performing loans and restructuring the assets with the objective to ultimately dispose.

“As you would expect for Thailand, strong interest was generated from local, regional and international investors for this asset, with the ultimate purchaser being the Hong Kong-based company Pioneer Global. The hotel was sold free of management.”

Mr. Hetherington added, “There have been other sales throughout Thailand, and most recently, the LaSalle Asia Recovery Fund acquired the Karon Villa Hotel Phuket. They will undertake a major refurbishment and re-launch the hotel as the Crowne Plaza Phuket. The cash-on-cash return of 7% reflects the upside potential of the property and the strength of the Phuket market.

As for the other favourite markets, Mr. Hetherington noted that international arrivals to China grew at 7.6% per annum between 1998 and 2003. With approximately 870 million travellers, the domestic market represents an extraordinary opportunity.

He said Chinese cities were seeing increased product differentiation and international brand penetration. Secondary markets like Tianjin are also witnessing development activity, and acquisition opportunities are appearing in Beijing, a market fuelled by the Olympics in 2008.

In Shanghai, a new wave of new hotel construction is set to start following the rapid absorption of hotel room supply developed during the 1990s.

He said Japan had the most liquid hotel market in 2003 with some US$825 million worth of hotels being sold. “With the strengthening of the economy, we expect more hotel transactions to occur in 2004. This will also be driven by the ongoing restructuring of companies’ balance sheets.”

He said some opportunity funds who acquired properties in the mid to late 1990s are now expected to now sell assets. “Competition to acquire assets is strong, with many large global opportunity funds based in Tokyo, together with the reemerging local investors are aggressively pursuing deals.

Mr. Hetherington said Tokyo will see an 18% increase in the luxury hotel segment over the next four years with the opening of the Peninsula, Mandarin Oriental, Conrad and Ritz Carlton. This will require existing owners of 5-star Japanese operated hotels to refurbish their assets in order not to risk losing their market position.

Australia remains a very liquid market, Mr. Hetherington said. “Brisbane represents an interesting investment opportunity based on potential growth in room revenue, limited new supply and the migration of people from the southern States.

“Whilst Melbourne is suffering from an oversupply of hotel rooms and serviced apartments, we believe it presents counter cyclical buyers with an interesting alternative.”

He said Sydney has seen a 14% drop in room supply over the 2000 level and combined with a 7.3% increase in arrivals to Australia during the March quarter of 2004, “we forecast strong growth in room yield and asset values over the next few years. Additionally, there is relatively limited new supply entering the market.”

Mr. Hetherington also cited India where the economy is growing, foreign exchange reserves have now exceeded US$100 billion and the country is becoming a global outsourcing and IT destination.

“From a trading perspective, Mumbai, Delhi and Bangalore have all seen their REVPAR (Revenue per available room) increase by more than 25% over the past 12 months. International operators are gaining a presence but for foreign investors the key markets are extraordinarily difficult to penetrate. Activity has and will continue to be dominated by local investors who invariably also undertake developments.”

Across the Asia-Pacific, he said, most markets are bottoming out and heading into REVPAR growth, with the exception of Seoul, Taipei, Bintan and Manila.

“Principally this growth will be occupancy driven but in some cases, such as Hong Kong, Phuket, Shanghai, Sydney and the Indian markets, will be supported by growing room rates.”

With 41 hotels changing hands in the region, 2003 was the strongest year since 1995 for hotel sales in Asia, with Japan alone accounting for 56% of the total value. This year, the total volume of sales is expected to reach at least 2002 levels, he said.

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