Global leader in hospitality consulting Beijing Hotel Market Sentiment Survey August 2014

Horwath HTL Beijing Hotel Market Sentiment Survey

August 2014

INTRODUCTION BEIJING V.S. CHINA SENTIMENT TRENDS

SHARE OF RESPONDENTS BY STAR CLASSIFICATION

The Horwath HTL Beijing Hotel Market Sentiment Survey, part of a national initiative, has been designed to provide the Beijing hotel industry with a quick assessment of the future market outlook. The four-question survey focuses on the outlook for occupancy, average room rate and total revenue. In this mid-year survey, hoteliers have been asked to make comments on their expectations for the coming semester in comparison to the second half of 2013, as well as share comments on the impact that the global economic uncertainties continued to have on hotel room night demand. This report summarizes the outcome of the survey and compares the Beijing market sentiment with that of other markets across China. Of the 56 respondents from Beijing, the majority of them come from 5-star hotels (64 percent), followed by 4-star hotels at 32 precent. The number of respondents from the 3-star and budget sectors has dropped to 2 percent compared to previous report in February. With the similar trend of China hotel market
Beijing shows a moderate assessment of the market sentiment in the second half of 2014. The following analysis provides some useful insights as to the expectations of Beijing’s hoteliers for the remaining of the year.

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Horwath HTL Beijing Hotel Market Sentiment Survey

SENTIMENT RANKINGS

SENTIMENT RANKINGS BY PRIMARY CITY

SCORE FEB JUL FEB JUL FEB AUG 2012 2012 2013 2013 2014 2014

Beijing

57

31

0

-45

-22

-26 11

Shanghai

30

4

15

-16

3

Shenzhen

51

8

17

-8

10

5

Guangzhou

15

24

1

-67

-

11

-13

-49

-3

-7

-5

-12

38

-3

-4

-38

-9

-12

Sanya China Avg.

“Hoteliers in Beijing are slightly more pessimistic on hotel performance than in the first half of the year.”

RANKING SCORE KEY Much Worse Worse Same Better Much Better

August 2014

-150.0 -75.0 0 75.0 150.0

As a way to measure and compare the results across regions and cities in China, we have created an index to formulate an overall average sentiment score from the last two forward looking questions. Points are assigned to each corresponding response and compounded accordingly. The index utilizes a scale of negative 150 to positive 150 in which a score of negative 150 denotes a sentiment of absolute pessimism; a zero score indicates unchanged expectations from the previous year whereas a positive 150 signifies a very optimistic outlook. The sentiment index or scores then allow trends to be observed over time. General sentiment of the China hotel industry recorded a positive improving trend when compared to the corresponding period of last year, registering a national average score of negative 12. With Sanya and Beijing showing the similar expectation for hotel performance with the national outlook, other primary cities in China have turned optimistic, as seen from the result. Of the primary cities, Beijing recorded the most negative sentiment with a score of negative 26, more pessimistic than the overall China hotel market (negative 12). Also, hoteliers in Beijing are slightly more pessimistic than they were in the first half of the year, since the score has shown a decrease by 4 points. Within the Beijing hotel market, the 5-star sector registered a negative score of 17, while the 4-star sector had a much lower score of negative 42, signalling that both sectors are still holding a pessimistic outlook for the rest of the 2014.

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Horwath HTL Beijing Hotel Market Sentiment Survey

August 2014

FIRST HALF MARKET PERFORMANCE Question 1: Was the first half 2014 market performance better or worse than you expected at the start of the year? OCCUPANCY In response to expectations on market-wide occupancy performance, more than 39 percent of the hoteliers replied that occupancy in the first half of 2014 was better or much better than expected; 23 percent felt that performance was in line with expectations while about 38 percent felt that occupancy performance was worse or much worse.

“Over 71 percent of Beijing hoteliers replied that ARR had performed worse or much worse than expected.”

MARKET PERFORMANCE RANKING BY CITY Beijing

Avg

Occ

ARR

Rev

-29

-1

-54

-32

Shanghai

17

33

-10

29

Guangzhou

23

75

-48

41

Shenzhen

25

25

17

33

0

21

-21

0

-32

-21

-38

-38

Hangzhou

-6

0

-17

0

Qingdao

-6

6

-25

0

Chengdu

-68

-38

-75

-90

Chongqing

-14

17

-42

-17

13

38

-28

28

Sanya Tianjin

Xiamen Hefei

-18

11

-43

-21

Kunming

-38

-38

-38

-38

33

25

63

13

Suzhou Wuxi

-13

0

-63

25

Xi’an

-8

25

-63

13

-14

3

-33

-11

China Avg.

AVERAGE ROOM RATE Over 71 percent of hoteliers reported that ARR had performed worse or much worse than expected. Some 16 percent of respondents voiced that ARR had remained the same. The remaining 13 percent of hoteliers held positive assessment, within which only 2 percent felt that ARR in the first half was much better than expected. TOTAL REVENUE In terms of total revenue, 50 percent of respondents felt the market’s first half performance was worse than they expected. About 20 percent reported that revenue was in line with expectations while 21 percent felt performance levels were better or much better than expected. INDEX SCORE The index was used to gauge the average responses of respondents with regards to their actual first half performance compared to their expectation at the beginning of the year. Amongst all primary cities, only Beijing recorded negative assessment of actual performance levels at the beginning of the year with an average score of negative 29. In the 5-star market, occupancy was assessed to perform best against expectations with a positive score of 4, followed by total revenue (-35) and ARR (-54). A similar trend was formed in the 4-star submarket, while registered a better revenue index score at negative 29.

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Horwath HTL Beijing Hotel Market Sentiment Survey

August 2014

THE IMPACT OF FINANCIAL CRISIS Question 2: Have continued global economic uncertainties impacted hotel demand as much as you had expected? When asked if the continued global economic uncertainty had impacted hotel demand as much as they had expected, some 43 percent of responding hoteliers indicated that the impact of the global economic uncertainties was in line with their expectations. Approximately 23 percent of hoteliers responded that demand was affected more or much more than expected. About 34 percent of respondents felt the global economic uncertainty had impacted hotel demand less or much less than expected.

“The 4-star hoteliers felt that the global financial crisis had affected them less than they expected.”

Amongst the key cities in China, Beijing ranked fifth with a positive score of 12, higher than the national average (7), indicating that the impact of the global financial uncertainties was similar to expectation. Hoteliers in Hefei (32), Shenzhen (25), Qingdao (19) and Kunming (13) felt less-than-expected financial impact than hoteliers in Beijing.

IMPACT OF FINANCIAL CRISIS BY CITY

Score Beijing Shanghai

12 3

Guangzhou

-7

Shenzhen

25

Sanya

11

Tianjin

-21

Hangzhou

-17

Qingdao

19

Chengdu

-15

Chongqing

8

Xiamen

0

Hefei

32

Kunming

13

Suzhou

0

Wuxi

0

Xi’an

-38

China Avg.

Respondents operating 4-star hotels felt the global financial crisis had affected them less than they expected with a score at positive 33. The 5-star hoteliers recorded a lower score of positive 2, reflecting the stronger impact that the financial crisis had on the 5-star hotels than on the 4-star hotels during the first half of the year.

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Horwath HTL Beijing Hotel Market Sentiment Survey

August 2014

SECOND HALF MARKET OUTLOOK Question 3: What are your expectations for the second half 2014 market performance compared to second half 2013? OCCUPANCY About 39 percent of hoteliers in Beijing expect that occupancy performance in the second half of 2014 will be worse or much worse in comparison to that in the second half of 2013, whereas close to 18 percent expect that occupancy in the second half will be better or much better. About 43 percent feel that occupancy will be in line with expectations.

“At least 39 percent of hoteliers in Beijing stated that they expect performance in all three measures to perform worse or much worse in the second half of 2014.”

SECOND HALF MARKET OUTLOOK BY CITY Beijing Shanghai Guangzhou Shenzhen

Avg

Occ

ARR

Rev

-30

-24

-42

-25

7

8

0

11

16

61

-41

27

-3

8

-25

8

Sanya

-14

11

-38

-16

Tianjin

-45

-32

-54

-48

Hangzhou

-27

-12

-46

-23

Qingdao

2

19

-19

6

Chengdu

-40

-23

-53

-45

Chongqing

28

42

0

42

Xiamen

13

38

-28

28

Hefei

-4

11

-11

-11

-29

-25

-38

-25

Kunming

46

50

38

50

Wuxi

-42

-25

-75

-25

Xi’an

-13

0

-38

0

China Average

-14

-2

-29

-10

Suzhou

AVERAGE ROOM RATE A vast majority of hoteliers at 63 percent indicate that ARR will perform worse or much worse than expected. About 25 percent of respondents expect ARR performance will be the same. Only 12 percent of Beijing hoteliers expect to see improved ARR performance for the second half of 2014. TOTAL REVENUE Following the same pessimistic outlook, about 46 percent of respondents believe that total revenue in the second half of this year will be worse or much worse than the same period of last year. About 36 percent of hoteliers expect that total revenue performance in the second half of 2014 to be consistent with last year, while 18 percent expect total revenue to increase. INDEX SCORE The index was used to gauge the average responses of respondents with regards to their expectation of second half performance this year compared to the corresponding outlook of the same period of last year. In the 5-star category, ARR receives the most pessimistic sentiment with a score of negative 31, followed by occupancy (-19) and total revenue (-17). For the 4-star market, ARR and total revenue are expected to drop with sentiment scores of negative 63 and negative 42 respectively, while occupancy was not expected to drop so much with a score of negative 33.

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Horwath HTL Beijing Hotel Market Sentiment Survey

August 2014

HOTEL PERFORMANCE EXPECATION Question 4: For your hotel, what are your expectations for second half 2014 performance compared to second half 2013? OCCUPANCY About 48 percent of the hoteliers expect occupancy performance at their hotel in the second half of 2014 to increase. Close to 43 percent of respondents feel occupancy at their hotel will decline in the second half of 2014 compared to the same period in 2013, with 23 percent expecting the decrease to be more than 5 percent.

“On average, hoteliers in Beijing have a negative expectation for their own hotels’ performance, scored at negative 21, more pessimistic than the average expectations for the China hotel market (-10).” SECOND HALF HOTEL PERFORMANCE EXPECTATION BY CITY Beijing Shanghai Guangzhou Shenzhen

Avg

Occ

ARR

Rev

-21

-5

-35

-23

15

22

5

17

7

27

-14

7

13

21

0

17

Sanya

-9

16

-35

-8

Tianjin

-43

-35

-40

-54

Hangzhou

-9

0

-17

-9

Qingdao

-3

3

-13

0

Chengdu

-46

-26

-56

-56

Chongqing

40

67

4

50

Xiamen

-5

14

-28

0

Hefei

-21

-11

-27

-27

Kunming

-29

-44

-6

-38

Suzhou

19

25

6

25

Wuxi

15

50

-38

31

Xi’an

-4

25

-50

13

-10

2

-22

-9

China Average

AVERAGE ROOM RATE The sentiment of ARR was more negative than the other two performance indices with about 70 percent of hoteliers expecting a decrease in ARR at their hotel in the second half of 2014 when compared to that in the second half of 2013. Only 21 percent of respondents still expect ARR to increase, with only 2 percent of these respondents expecting the increase to be more than 5 percent. TOTAL REVENUE About 29 percent of hoteliers expect improved revenue performance at their hotel in the second half of this year when compared to the same period of last year. Some 52 percent of respondents expect revenue to decline, within which close to 27 percent of hoteliers are expecting the decline to be in excess of 5 percent. The remaining 19 percent of respondents believe total revenue will be in line with that in the second half of 2013. INDEX SCORE Amongst the primary cities, Beijing records the most pessimistic expectation for their own hotels’ performance in the second half of 2014, registering a negative score of 21. Hoteliers in both star categories are all pessimistic on their hotel performance. 4-star hoteliers are the most pessimistic with an ARR sentiment score of negative 56, followed by revenue (-38) and occupancy (-21). 5-star sector registers the most positive expectation of occupancy performance at 4, even higher than the Beijing market sentiment at negative 5.

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Horwath HTL Beijing Hotel Market Sentiment Survey

OTHER MARKET SENTIMENT REPORTS BY REGION ASEAN Europe South East Europe BY COUNTRY Brazil China Hungary Indonesia Ireland Italy Japan Norway Poland Switzerland BY CITY/DESTINATION Beijing Shanghai

August 2014

CONCLUSION In conclusion, hoteliers in Beijing remained pessimistic on their outlook for the rest of 2014 regarding market-wide occupancy, ARR and total revenue as well as their own property’s performance. Overall, Beijing recorded a slightly lower sentiment score of negative 26, compared to a score of negative 22 in February 2014. The majority of the respondents in Beijing agreed that the first half 2014 market performance was worse than they expected regarding ARR and revenue. Despite the declines in performance, hoteliers in Beijing felt that the global economic uncertainties had impacted the market less than initially expected. Beijing hoteliers still hold a pessimistic view on market outlook and hotel performance for the second half of the year, with both sentiments worse than the national averages.

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Horwath HTL Beijing Hotel Market Sentiment Survey

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August 2014

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