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1 Global leader in hospitality consulting Shanghai Hotel Market Sentiment Survey August 2014

2 INTRODUCTION SHANGHAI V.S. CHINA SENTIMENT TRENDS SHARE OF RESPONDENTS BY STAR CLASSIFICATION The Horwath HTL Shanghai Hotel Market Sentiment Survey, part of a national initiative, has been designed to provide the Shanghai 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 Shanghai market sentiment with that of other markets across China. Of the 46 respondents from Shanghai, the majority of them come from 5-star hotels (67 percent), followed by 4-star hotels at 28 precent. The number of respondents from the 3-star and budget sectors has dropped to 2 percent compared to previous report in February. Different from China hotel market, Shanghai shows a slightly positive improvement of the market sentiment in the second half of The following analysis provides some useful insights as to the expectations of Shanghai s hoteliers for the remaining of the year. 2

3 SENTIMENT RANKINGS BY PRIMARY CITY FEB 2012 JUL 2012 SCORE FEB 2013 JUL 2013 FEB 2014 AUG 2014 Beijing Shanghai Shenzhen Guangzhou Sanya China Avg Shanghai hotel market registered a score of positive 11, indicating an optimistic performance outlook for the rest of SENTIMENT RANKINGS 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 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. RANKING SCORE KEY Much Worse Worse Same 0 Better 75.0 Much Better The ranking of Shanghai among primary cities has displayed an improvement from the previous report in which it ranked the second with a score of 3 in February this year. Shanghai is currently ranked the first with a score of positive 11, indicating Shanghai hoteliers increased confidence for the market performance outlook in the second half of Within the Shanghai hotel market, the 5-star sector retains a rather neutral outlook for the rest of 2014, with a sentiment score of negative 1, while the 4-star sector records a score of positive 32, signalling a more optimistic expectation. 3

4 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, half of the hoteliers replied that occupancy in the first half of 2014 was better or much better than expected, while 30 percent felt that performance was in line with expectations. No one felt that occupancy performance was much worse than expected. Shanghai had a better than expected first half performance with an average sentiment score of positive 17. AVERAGE ROOM RATE The ARR performance for the first half of 2014 was not as bad as expected, with over 28 percent of hoteliers reporting that ARR had performed better or much better than expected. Another 28 percent of respondents voiced that ARR had remained the same. The remaining 44 percent of hoteliers felt that ARR performance was worse or much worse than expected. MARKET PERFORMANCE RANKING BY CITY Avg Occ ARR Rev Beijing Shanghai Guangzhou Shenzhen Sanya Tianjin Hangzhou Qingdao Chengdu Chongqing Xiamen Hefei Kunming Suzhou Wuxi Xi an China Avg TOTAL REVENUE In terms of total revenue, only 15 percent of respondents felt the market performance was worse or much worse than they expected. About 37 percent reported that revenue was in line with expectations, while 48 percent felt revenue performed better or much better than expected. INDEX SCORE The index was used to gauge the average responses of respondents with regards to their actual performance compared to their expectation at the beginning of the year. Amongst all key cities, Suzhou was the most optimistic one, registering a score of positive 33, followed by Shenzhen (25) and Guangzhou (23). Shanghai ranked the fourth with an average score of positive 17. In the respective star categories, all submarkets performed better than expected with 5-star and 4- star markets registering average sentiment scores of positive 3 and positive 50 respectively. 4

5 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 uncertainties had impacted hotel demand as much as they had expected, the vast majority at 65 percent voiced that the impact of the global financial crisis was in line with their expectations. Approximately 15 percent of hoteliers responded that demand was still affected more than expected. The remaining 20 percent of responding hoteliers indicated that the global economic uncertainty had impacted hotel demand less. Different from Beijing hotel market, respondents operating Shanghai 5-star hotels felt lessthan-expected global economic impact. Amongst the key cities in China, Shanghai registered a score of positive 3, lower than the national average, indicating that the impact of global financial uncertainties was similar to expectation. Hotel markets in other cities, such as Xiamen, Suzhou and Wuxi, which all registered sentiment score of zero, also showed that the impact of financial crisis was the same as expected. IMPACT OF FINANCIAL CRISIS BY CITY Score Beijing 12 Shanghai 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. 7 Different from Beijing hotel market, respondents operating Shanghai 5-star hotels felt less-thanexpected global economic impact with a score of positive 5. The 4-star hoteliers felt that the impact was the same as they had expected. 5

6 SECOND HALF MARKET OUTLOOK Question 3: What are your expectations for the second half 2014 market performance compared to second half 2013? OCCUPANCY More than 41 percent of hoteliers in Shanghai expect that occupancy performance in the second half of 2014 will be better in comparison to that in the second half of 2013; whereas 28 percent expect that occupancy in the second half will be worse or much worse. About 31 percent feel that occupancy will be in line with expectations. Less than 24 percent of hoteliers in Shanghai stated that they expect performance in all three measures to perform worse or much worse in the second half of SECOND HALF MARKET OUTLOOK BY CITY Avg Occ ARR Rev Beijing Shanghai Guangzhou Shenzhen Sanya Tianjin Hangzhou Qingdao Chengdu Chongqing Xiamen Hefei Kunming Suzhou Wuxi Xi an China Average AVERAGE ROOM RATE Some 30 percent of hoteliers indicate that ARR will perform worse or much worse than expected. 37 percent of respondents expect ARR performance will be the same. The remaining 33 percent of Shanghai hoteliers expect to see improved ARR performance for the second half of 2014 when compared to the same period in TOTAL REVENUE Following the same optimistic outlook, about 41 percent of respondents believe that total revenue in the second half of this year will be better than the same period of last year. About 35 percent of hoteliers expect that total revenue performance in the second half of 2014 to be consistent with last year, while 24 percent expect total revenue to decrease. 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. Amongst the primary cities, Shanghai records the second highest score at positive 7. The 4-star submarket has more positive outlook for the second half 2014, registering an average sentiment score of positive 31, with occupancy, ARR and total revenue scoring 35, 17 and 40 respectively. The 5-star submarket records a more pessimistic outlook with an average score of negative 6. 6

7 HOTEL PERFORMANCE EXPECATION Question 4: For your hotel, what are your expectations for second half 2014 performance compared to second half 2013? OCCUPANCY About 59 percent of hoteliers expect occupancy performance at their hotel in the second half of 2014 to increase. 26 percent of respondents expect occupancy to decline, of which only 7 percent feel the decrease will be more than 5 percent. More optimistic than national average, Shanghai market shows positive expectation for the hotel performance in the second half of 2014, scored at positive 15, much more positive than their Beijing counterpart s expectation (-21). SECOND HALF HOTEL PERFORMANCE EXPECTATION BY CITY Avg Occ ARR Rev Beijing Shanghai Guangzhou Shenzhen Sanya Tianjin Hangzhou Qingdao Chengdu Chongqing Xiamen Hefei Kunming Suzhou Wuxi Xi an China Average AVERAGE ROOM RATE The sentiment of ARR is more pessimistic than the other two performance indices with about 33 percent of hoteliers expecting a decrease in ARR in the second half of 2014 when compared to that in the second half of More than 39 percent of respondents hold positive expectations, with 4 percent of these respondents expecting the increase to be more than 10 percent. TOTAL REVENUE About 54 percent of hoteliers expect improved revenue performance in the second half of this year while compared to the same period of last year. Close to 22 percent of respondents believe total revenue will be in line with that in the second half of The remaining 24 percent of respondents expect revenue to decline, within which only 2 percent of hoteliers expect the decline to be in excess of 10 percent. INDEX SCORE With the key cities, Shanghai records the third highest average sentiment score at positive 15, reflecting the optimistic expectation that Shanghai hoteliers hold for their hotels performance in the second half of Interestingly, Shanghai hoteliers operating the 5-star hotels hold more pessimistic outlook for their hotel performance than their 4-star counterparts. The 5-star market registers a positive average sentiment score at 4, with occupancy, ARR and revenue scoring at 13, -7 and 5 respectively, whereas the 4-star market records an even higher score at positive 33. 7

8 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 CONCLUSION Compared to many other markets, Shanghai hoteliers perception of their market-wide performance for the rest of 2014 is more positive, in all measures as occupancy, ARR and total revenue as well as their own properties performance. Overall, Shanghai market showed a positive improvement with a sentiment score of positive 11, higher than the sentiment at positive 3 in February this year. The first half 2014 market performance was slightly worse than expected across China; Shanghai had a positive response to its first half performance, attribute to less than expected impact from the global economic uncertainty and domestic economic slowdown. Looking forward, respondents feel more positive on hotel performance for the second half of

9 ASIA PACIFIC AUCKLAND, NEW ZEALAND BANGKOK, THAILAND BEIJING, CHINA HONG KONG, SAR JAKARTA, INDONESIA KUALA LUMPUR, MALAYSIA MUMBAI, INDIA SHANGHAI, CHINA SINGAPORE, SINGAPORE SYDNEY, AUSTRALIA TOKYO, JAPAN EUROPE AMSTERDAM, NETHERLANDS ANDORRA LA VELLA, ANDORRA BARCELONA, SPAIN BUDAPEST, HUNGARY DUBLIN, IRELAND FRANKFURT, GERMANY ISTANBUL, TURKEY LISBON, PORTUGAL LONDON, UK MADRID, SPAIN MOSCOW, RUSSIA OSLO, NORWAY NORTH/CENTRAL AMERICA ATLANTA, USA ATLANTA, USA ATLANTA, USA DALLAS, USA CHICAGO, USA DENVER, USA LOS ANGELES, USA LAS VEGAS, USA MONTREAL, CANADA MEXICO CITY, MEXICO NEW YORK, USA PHOENIX, USA AFRICA CAPE TOWN, SOUTH AFRICA PARIS, FRANCE ROME, ITALY SAN FRANCISCO, USA DOMINICAN REPUBLIC LATIN AMERICA BUENOS AIRES, ARGENTINA SÃO PAULO, BRAZIL MEXICO CITY, MEXICO DOMINICAN REPUBLIC SANTIAGO, CHILE BOGOTA, COLOMBIA SALZBURG, AUSTRIA WARSAW, POLAND ZAGREB, CROATIA ZUG, SWITZERLAND TORONTO, CANADA 9