HORWATH HTL NEWSLETTER CHINA EDITION 4, 2011 浩华中国资讯 2011 年第 4 期

Transcription

1 HORWATH HTL NEWSLETTER CHINA EDITION 4, 2011 浩华中国资讯 2011 年第 4 期

2 CHINA MARKET OVERVIEW Urumqi GENERAL MARKET REVIEW Urumqi is the provincial capital of Xinjiang Province in Northwest China and serves as the administrative hub for one-sixth of China s territory. Xinjiang also borders eight foreign countries, so Urumqi fills a critical role as a trade and shipping hub for the entire central Asian region. Xinjiang has grown in the last decade through development of natural resource industries, including petro-chemical processing and natural gas. Xinjiang is also an important agricultural and farming region with its fruits, nuts, and sheeps wool in high demand. As part of the central government s aggressive economic development program for the province, Xinjiang s volume of fixed-asset investment grew by 25 percent in 2010, ballooning to a total of RMB 354 billion. Aggressive investment in infrastructure, manufacturing, and real estate carried Xinjiang s GDP to a new high of RMB 544 billion in 2010, rising 11 percent from the previous year. SUPPLY, DEMAND & OCCUPANCY Unlike many first and second tier cities in China, Urumqi s hotel market has not been inundated with large volumes of new supply. During the six-year period from 2006 through 2011, Urumqi s upper-tier hotel market supply only grew by a total of 23 percent, with an annual CAAG of just 4 percent. From 2006 through 2010, occupancy performance fluctuated between 40 and 50 percent. Even though the market did not suffer from an oversupply problem during this period, the room night demand is highly subject to seasonality. Each year, leisure and MICE demand booms during the summer season, but in winter Urumqi hotels must largely subsist on local corporate demand and local food and beverage consumption. By 2011, however, a new pattern in hotel demand began to emerge. The significant attention that Xinjiang s economic growth and investment opportunities fueled a large influx of corporate, government and MICE business from throughout China. This resulted not only in a longer peak tourism and convention season, but also helped to keep demand levels high into the fall and early winter months. By the end of 2011, Urumqi hoteliers reported that occupancy levels had reached a new all time high, approaching 60 percent or more in some cases. By Michael Joyce, Senior Consultant, Horwath HTL RATE PERFORMANCE Average room rates for the upper-tier hotel market have grown steadily during the past 5 years with a CAAG of 6 percent by 2010 when rates reached a new high of RMB 550. By the end of 2011, average room rates were between RMB 500 and RMB 700 for Urumqi s 5-star hotel market. Including 4-star hotels, however, average room rates were still able to surpass RMB 600 as 2011 drew to a close s average room rate growth was possible on the back of higher demand levels throughout the year and on the market s weakening room rate sensitivity as corporate and MICE travel budgets have grown. MARKET SEGMENTATION Urumqi is primarily a corporate market and this segment accounts for near 50 percent of demand throughout the year. Leisure group and leisure FIT guests account for 21 percent and 7 percent of demand respectively. MICE demand makes up the third largest market segment, accounting for 19 percent of room nights generated in Xinjiang s rich cultural and natural scenic tourism resources have made the province a popular destination for leisure and MICE groups who flock to the destination each summer. While the leisure and MICE segments generate nearly half of all room nights of demand for the Urumqi hotel market, these segments are traditionally highly seasonal. The majority of leisure and MICE visitors to Xinjiang choose to stay away during the winter months, which leaves only corporate and some government demand to fuel the local hotel market. NEW SUPPLY The new supply outlook for the greater Urumqi area still remained moderate at the time of writing. In 2011, SinoPec opened a new hotel in the northwest of the city called the Northwest Petroleum Hotel in May, A Hilton branded hotel is scheduled to open in mid-2013 with 408 rooms and will be located in the Hong Guang Shan ( 红光山 ) area on the northern edge of Urumqi s city center, but adjacent to the newly opened Xinjiang International Exhibition Center. Last, the local 4-star Hualing Hotel has confirmed that it will undergo a year-long renovation beginning in 2012 to convert and rebrand the hotel as a Grand Mercure under Accor s management. Following the renovation, the hotel s room

3 CHINA MARKET OVERVIEW Urumqi inventory will grow to 270, from the current room count of 245. Urumqi s ongoing robust real estate boom may trigger a sudden burst of development in the hotel sector, but no other new hotel developments could be confirmed at the time of writing. MARKET OUTLOOK Urumqi s strategic importance as the administrative and economic hub, not only for a huge expanse of China s northwestern territory, but also for the entire central Asian region, will continue to grow in the foreseeable future. Moreover, the central government s firm stance on promoting social stability in the region through economic prosperity and incentive policies will continue to fuel investment in Xinjiang for many years. Moreover, Xinjiang s vast territory has many areas of stunning natural beauty and unique cultural heritage that have yet to be fully tapped into for tourism development. All of these factors indicate that hotel demand should remain positive for all market segments and that occupancy levels should continue to steadily move higher within the constraints of seasonality. The entrance of additional international hotel brands into the market should help nurture consumer expectations for higher service and facility standards in the local consumer market, leading to higher expectations for such products in the future.

4 KEY MARKETS UPDATE Q CHINA By Matthew Mok, Consultant, Horwath HTL KEY MARKETS PERFORMANCE UPDATE YOY GROWTH, Q VERSUS Q KEY MARKETS PERFORMANCE UPDATE YTD SEPTEMBER GROWTH, 2011 VERSUS 2010 Source: STR Global Source: STR Global Based on the above performance data of the key markets in China provided by STR Global, Horwath HTL further provides brief comments for each market.

5 KEY MARKETS UPDATE Q CHINA BEIJING Benefitting from the strong growth in demand as well as a relatively stable supply base, the Beijing hotel market continued to see a strong growth in occupancy for Q Market-wide occupancy remained at around 75 percent, an increase of 12 percent overall compared to Q Market-wide ADR also experienced positive growth of 9 percent from RMB 616 for Q to RMB 671 for Q Accordingly, market-wide RevPAR recorded RMB 504 for Q3 2011, a significant increase of 22 percent versus the same quarter of For YTD September 2011, the overall market achieved increases of 8 percent, 9 percent, and 17 percent respectively for occupancy, ADR, and RevPAR in comparison with the same period of The new supply outlook is expected to be strong in the coming years, especially the upper-tier brands, such as Rosewood, Four Seasons, Conrad, MGM, Waldorf-Astoria and W Hotel. SHANGHAI Similar to Q2, the Shanghai hotel market in Q3 2011continued to realize a significant decrease in performance. Market-wide occupancy dropped by 19 percent in comparison with Q due to the significant decrease in demand. A similar drop has also been seen in market-wide ADR performance, which dropped by 13 percent over Q Accordingly, market-wide RevPAR recorded RMB 459 in Q3 2011, a significant drop of approximately 30 percent over the Q level. For YTD September 2011, the overall market recorded a significant decrease of 14 percent, 8 percent and 21 percent respectively for occupancy, ADR, and RevPAR over the same period of SHENZHEN Following the strong growth in demand in Q2, the Shenzhen hotel market has maintained occupancy at above 65 percent for Q3 2011, recording an increase of 6 percent over the same quarter of Market-wide ADR has improved more significantly, with an increase of 19 percent. Accordingly, market-wide RevPAR has seen strong growth of 26 percent over Q3 2010, increasing to RMB 584 for Q According to the data provided by STR Global, for YTD September 2011, market-wide occupancy, ADR, and RevPAR improved by 10 percent, 17 percent, and 28 percent respectively over the same time period of The new supply outlook of Shenzhen is expected to be strong in the coming 2 years, with the international brands, such as Four Seasons, Marriott, Hilton and Hyatt Regency. The St. Regis Luohu has just opened in December 2011 with 297 guestrooms. Even with the strong supply growth in the coming years, we are optimistic about demand growth. HANGZHOU Due to a decrease in demand, the Hangzhou hotel market has seen a drop of 9 percent in market-wide occupancy for Q In comparison with occupancy, market-wide ADR continued to see a positive growth, recording RMB 645 in Q3 2011, an increase of 8 percent over the Q level, especially in the West Lake area. As a result, market-wide RevPAR did not change significantly, with a slight drop of 1 percent over the Q level. For YTD September 2011, the overall market recorded a drop of 3 percent in market-wide occupancy, while market-wide ADR and RevPAR improved by 9 percent and 6 percent respectively. The new supply outlook is expected to be strong in the next 3 years with international brands, such as Wyndham, Hilton, Four Seasons, Jumeriah, Park Hyatt and Shangri-La. Angsana Resort and Sheraton Hangzhou Wetland Park Resort have just opened in November, It is worth noting that more projects are currently being developed in the Xixi Wetland Area, where comprises rich biological resources and a pleasant environment. SUZHOU Different to the Hangzhou hotel market, the Suzhou hotel market has seen a slight drop in occupancy of 1 percent for Q over Q However, market-wide ADR presented a positive growth of 6 percent over the same quarter of Accordingly, market-wide RevPAR experienced a positive growth of 6 percent during the same quarter. For YTD September 2011, the overall market recorded positive growth of 2 percent, 4 percent, and 6 percent respectively for Occupancy, ADR, and RevPAR in comparison with the same period of 2010.

6 KEY MARKETS UPDATE Q CHINA DALIAN Benefitting from a stable supply base and a continuous increase in demand, the Dalian hotel market has seen positive growth in occupancy of 9 percent for Q over Q In comparison, market-wide ADR recorded a more significant increase of approximately 12 percent during the same quarter. Accordingly, market-wide RevPAR experienced a significant recovery of 22 percent, recording RMB 476 for Q The Dalian hotel market recorded increases of 7 percent, 6 percent, and 14 percent respectively for occupancy, ADR, and RevPAR for YTD September The new supply outlook is expected to be strong in the coming years, with international brands, such as Conrad, Sheraton, Grand Hyatt, Luxury Collection, Shangri-La, JW Marriott and Ritz-Carlton. The market is expected to be slightly over-supplied by CHENGDU The third quarter normally is the high demand season for the Chengdu hotel market. All the three major performance indicators experienced strong growth for Q Market-wide occupancy dramatically improved by 14 percent over the Q level, while ADR improved by 18 percent, recording RMB 698. Accordingly, market-wide RevPAR improved by 34 percent recording RMB 517 for Q The overall market recorded increases of 9 percent, 15 percent, and 25 percent respectively for occupancy, ADR, and RevPAR performance for YTD September 2011 versus the same period of The new supply outlook is expected to be strong, with an additional 7,000 daily room available by The major brands include Ritz-Carlton, Grand Hyatt, St. Regis, Radisson Blu, Conrad, InterContinental and MGM. The sudden influx of new supply over the next few years is likely to upset the market equilibrium and cause a downturn in occupancy levels. XI AN The Xi an hotel market continued to record a double-digit increase in demand for Q Market-wide occupancy was able to reach approximately 68 percent for Q3 2011, an increase of 11 percent over the same quarter of In comparison, market-wide ADR experienced a more significant growth of 23 percent, recording RMB 600 for Q Due to the strong improvement in both occupancy and ADR, market-wide RevPAR experienced a significant improvement, increasing by 37 percent over the Q level. For YTD September 2011, the overall market recorded increases of 10 percent, 18 percent, and 30 percent for occupancy, ADR, and RevPAR performance versus the same time period of TIANJIN The Tianjin hotel market continued to see positive growth in demand with an increase of 8 percent for Q over the same quarter of Market-wide occupancy improved from 51percent for Q to 55 percent for Q In comparison, market-wide ADR experienced a slight drop of 2 percent, recording RMB 521 for Q Accordingly, RevPAR improved by 6 percent, recording RMB 286 for Q For YTD September 2011, the overall market recorded increases of 5 percent, 1 percent, and 6 percent for occupancy, ADR, and RevPAR performance versus the same time period of The currently over-supplied Tianjin market is expecting another large amount of rooms to enter the market between 2012 and The major brands include Hyatt, Banyan Tree, Hilton, Crowne Plaza, Marriott, Shangri-La, Kempinski, Pullman and Ritz-Carlton. The St. Regis Tianjin opened in October, 2011 with 276 guestrooms. We are expecting the Tianjin market to continue to suffer from its over-supplied status in the coming years. CHONGQING Following the positive growth trend for the first half of 2011, the Chongqing hotel market continued to see growth for the three major performance indicators. Market-wide occupancy improved from 56 percent for Q to 63 percent for Q3 2011, an increase of 12 percentage points, while ADR improved by 14 percent, recording RMB 492 for Q Given the strong growth in both occupancy and ADR, RevPAR experienced a significant increase of 28 percent, recording RMB 310 during the same quarter. The overall market recorded increases of 9 percent, 13 percent, and 23 percent respectively for occupancy, ADR, and RevPAR performance for YTD September 2011 versus the same period of 2010.

7 KEY MARKETS UPDATE Q CHINA QINGDAO Q3 has usually been seen as the peak season in Qingdao. Due to the increase in demand and a relatively stable supply base, the market-wide occupancy level for Q improved to 77 percent, an increase of 9 percent over the same quarter of Market-wide ADR recorded a more significant increase of 11 percent, recording RMB 766 for Q Accordingly, RevPAR increased from RMB 488 for Q to RMB 590 for Q3 2011, a significant increase of 21 percent. For YTD September 2011, the overall market recorded increases of 10 percent, 10 percent, and 21 percent for occupancy, ADR, and RevPAR performance versus the same time period of As with other major cities, the new supply outlook is expected to be strong in the next few years, with the brands of Four Seasons, Ritz-Carlton, Wesitn, Park Hyatt and Sofitel entering. However, we are optimistic about the Qingdao market with strong growth of corporate and MICE demand, due to the rapid growth of economy. GUANGZHOU Continuous growth in demand has helped the Guangzhou hotel market to maintain market-wide occupancy at above 60 percent for Q3 2011, recording an increase of 4 percent over the same quarter of Market-wide ADR grew at a faster pace of 8 percent in comparison with Q Accordingly, market-wide RevPAR improved by 12 percent over the same quarter of For YTD September 2011, the overall market recorded increases of 6 percent, 8 percent, and 14 percent for occupancy, ADR, and RevPAR performance versus the same time period of The new supply outlook is expected to be strong in the coming 3 years with international brands, such as Four Seasons, Westin, W Hotel, Jumeirah, Park Hyatt and Mandarin Oriental. Two Hilton properties opened in August 2011, with a total room count of 817. Such strong supply growth, is expected to outweigh demand growth, and the market-wide occupancy is expected to drop. HAINAN The Hainan hotel market achieved a strong performance in Q Due to the significant increase in demand (19 percent over the same quarter of 2010), market-wide occupancy improved to 51 percent, an increase of 19 percent over the same quarter of Market-wide ADR increased by 20 percent during the same quarter. Due to the strong growth in occupancy and ADR, market-wide RevPAR recorded a strong growth of 43 percent, recording RMB 507 for Q For YTD September 2011, the overall market recorded increases of 15 percent, 15 percent, and 33 percent for occupancy, ADR, and RevPAR performance versus the same time period of The new supply outlook is expected to be strong in the coming years, with an additional 14,000 rooms by Sheraton Shenzhou Peninsula Resort, opened in August 2011, St. Regis Sanya and MGM Grand Sanya, both opened in December 2011, added a total of 1,384 rooms to the market. However, we are optimistic about the overall market performance with strong demand growth expected, mostly supported by high-end domestic travellers.

8 KEY MARKETS UPDATE Q CHINA The following table summarizes the number of participating hotels included in our analysis for each identified key market: PARTICIPATED HOTELS FOR KEY MARKETS, Q Total Participated Participated Hotel Count by Class Key Markets Hotels Economy Midscale Upper Midscale Upscale Upper Upscale Luxury Beijing Shanghai Dalian Suzhou Guangzhou Shenzhen Chengdu Hangzhou Xi an Tianjin Chongqing Qingdao Hainan Total Source: STR Global

9 CHINA HOT SPRING HOTELS DEVELOPMENT OVERVIEW YEAR 2011 By Linda Li, Senior Consultant, Horwath HTL By Matthew Mok, Consultant, Horwath HTL INTRODUCTION is in line with the nature of hot spring hotels as a destination A hot spring is a spring that is produced by the emergence of for leisure and relaxation. geothermal heated groundwater from the Earth s crust. China has abundant hot springs resources, representing 7.9 percent Visitors of the geothermal sources in the world. It is reported that approximately 11 percent of the total hot spring demand. It is there are more than 2,600 hot spring sources in China, largely known that some enterprises and institutions tend to deal with scattered in Qinghai-Tibet Plateau, southeast coastal areas and hot spring hotels by corporate contracts in order to have inland basin areas. The temperatures of most hot springs in lower prices for hotel rooms, hot spring tickets and other China are about 70 to 80 degrees Celsius, while a few hot consumption at the hotels. springs in Tibet can reach 150 degrees Celsius. sourced from corporate accounts take up MICE demand generates around 13 percent of the total hot Benefiting from the rich, natural geothermal resources in the spring visitors. Hot spring hotels with proper room and areas, provinces like Beijing, Jiangsu, Fujian, Guangdong, meeting facilities are usually attractive to leisure oriented Yunnan and Hainan have witnessed the robust growth of a hot meeting groups and incentive groups through offering a wide spring tourism industry in the past years with a good number selection of hot spring pools and other leisure facilities. of hot spring hotels being developed. Nevertheless, there are very limited hot spring developments at the remote inland areas such as Tibet and Qinghai. This results from these areas less developed economy and tourism industry, as well as difficulty in accessibility. DEMAND MIX SEGMENTATION The following chart presents the demand mix of hot spring visitors captured by the hot springs: The following graph indicates the average ticket prices of each individual market segment for the participating hotels in 2010: 协议客户 Corporate 会议团队 MICE 旅游散客 Leisure FIT 旅游团队 Leisure Group 其它 Others As shown in the above graph, leisure FIT takes the lead of all the market segments with an average ticket price of RMB 151, significantly surpassing all the other segments by at least 30 percent. Individual leisure visitors typically possess weak negotiating power for ticket prices since they are not likely to guarantee the quantity of hot spring tickets. On the contrary, the segments of corporate account, leisure group and MICE group could afford a large amount of ticket flow per event or per certain period of time, and thus have stronger bargaining power for lower ticket prices. Individual leisure travellers are the largest source of hot spring visitors, responsible for around 50 percent of the total visitors, followed by leisure groups accounting for 21 percent of the total demand. This results in more than 70 percent of the visitors from the leisure demand segment and this observation

10 CHINA HOT SPRING HOTELS DEVELOPMENT OVERVIEW YEAR 2011 NATIONALITY SEGMENTATION The chart below indicates the nationality segmentation of hot spring visitors at the hot springs: SOURCE MIX OF HOT SPRING VISITORS The following presents the source mix of hot spring visitors at the participating hotels: 港, 澳, 台 HK, Macao, Taiwan, 7% 日, 韩 Japan, Korea, 1% 其它亚洲国家 Asia Others, 1% 其它 Others, 1% 非酒店住客的温泉访客 Outside HS Visitor, 68% 酒店住客的温泉访客 In house HS Visitor, 32% 中国大陆 China Mainland, 90% Hot spring demand at all the participating properties is dominated by domestic guests, who in some cases accounted for as much as 99 percent of total demand. Such domestic demand is overwhelmingly generated from nearby major cities around the hot spring hotels. For example, the management of participating hotels located in Guangdong unanimously identified major cities in the Pearl River Delta area (e.g. Zhuhai, Guangzhou, Shenzhen and Dongguan) to be their main demand generators. Similarly, the hot spring hotels in Beijing have also identified the greater Beijing area to be the main demand source. We believe that this regional nature is largely due to the remote locations of the hotels, which is in turn dictated by the location of the hot springs. Where present, international demand tends to come from the Asian countries and regions regardless of the hotel s location, consisting largely of Hong Kong, Macau, Taiwan, Japan and Korea, as these regions and countries generally have a hot spring culture originating from Mainland China. The majority of this segment of demand comprises of weekend leisure travellers looking for a relaxing hot spring visit, golf games or visits to theme parks. As indicated from the pie chart above, walk-in guests take up approximately 68 percent of the total hot spring visitors, as opposed to 32 percent generated by in-house guests. In-house guests of the hot spring hotels naturally form captured demand for the hot spring facilities with many hotels reporting 100 percent capture rate of in-house guests. Moreover, walk-in guests contribute a very generous amount of hot spring demand for the participating hotels. Each of the participating hotels opens the hot spring facility to the public through the purchase of a day access ticket and / or through membership access. Many hot spring hotels even offer value-for-money day-trip packages to attract local leisure FIT and tour groups with competitive prices. ADVANCE RESERVATION CHANNEL The following chart indicates the channels of advance reservations for the hot spring tickets: 其它网络订房系统 ( 如 : 携程, 艺龙 ) Other Internet Site (Ctrip, Elong), 4% 散客 Walk In, 39% 其它 Others, 1% 顾客直接向酒店预订 Direct Inquiry, 12% 协议客户 Corporate, 12% 会议团队 MICE, 9% 旅行社 / 旅游营运商 Travel Agent/ Tour Operator, 22%

11 CHINA HOT SPRING HOTELS DEVELOPMENT OVERVIEW YEAR 2011 Travel agent/tour operator is the primary channel of advance reservation for the participating hotels, generating approximately 22 percent of total hot spring visitors. Corporate contracts and MICE groups are also considered major reservation channels, contributing around 12 percent and 9 percent of visitors respectively. These methods of reservation allow hot spring visitors to obtain lower ticket prices, since they normally contract a large amount of tickets from the hotels. Walk-in and direct inquiry combined contribute about 51 percent of total hot spring demand. Visitors sourced from these channels are largely individual leisure guests and willing to pay higher ticket prices for hot spring activities. Advance booking through third party internet sites such as Ctrip, Elong makes up a minor proportion of total reservations at 4 percent. However, it is expected that online reservations will be getting more popular in the future since it is known as a more cost-saving and efficient reservation method. hotels reflects what might be expected from a leisure demand dominated hot spring market. As stated previously, leisure FIT and leisure group demand combined were responsible for more than two thirds of total hot spring demand. A similar seasonal pattern can be observed with average ticket prices. In general, weekends are considered prime periods for the hot springs to command higher ticket prices given the presence of higher proportion of less price-sensitive leisure FIT travellers on weekends. On the other hand, the participating hot springs receive more demand from corporate accounts, MICE and leisure groups on weekdays, resulting to a lower average ticket price. Worthy noting is that the average price gap between weekday and weekend is not very large, partly because some of the participating hotels do not exercise the strategy of fluctuating ticket price by day of the week. The following graph illustrates the fluctuations of monthly hot spring demand and ticket price for the participating hotels: SEASONALITY ANALYSIS The following graph shows the fluctuations of hot spring visitors and average ticket price by day of the week for the participating hotels in 2010: According to the above graph, the number of hot spring visitors captured by the participating hotels demonstrates significant fluctuations. Weekdays between Monday and Wednesday are the period when the participating hotels experience slow business while weekends from Friday to Sunday form the peak demand period. Such a day-of-week-demand pattern observed from the participating Hot spring demand received by the participating hotels experience an apparent fluctuating seasonality throughout the year. In general, the properties recorded the high season during the late autumn and winter months from October to February, which are regarded as the best season for hot spring soaking. In addition, this is also the peak period with strong MICE demand for the year-end annual meetings. The hot spring market enters its low period from March and lasts till September. However, it is noted that the participating properties capture relatively vibrant demand during the months of July and August. Given the presence of the school summer holiday, family travels are frequent in this period and

12 CHINA HOT SPRING HOTELS DEVELOPMENT OVERVIEW YEAR 2011 help boost the growth of hot spring demand. Moreover, mid-year reviewing meetings and training meetings are also often held at the hot spring properties. The average price and hot spring demand received by the participating hotels indicate a correlation seasonality pattern. With the strong hot spring demand from October to February, the participating hotels typically receive the highest ticket prices in this period. Nevertheless, July and August report the lowest ticket prices within a year as the properties tend to provide very appealing prices to attract family and group demand. Summer months are generally not considered a good season for hot spring activities due to the hot weather. LABOR STATISTIC The average operating hours of hot spring facilities at the participating hotels are approximately 17 hours. Only a limited number of hot spring hotels record 24 operating hours. Number of staff on shift is one of the most significant factors that affect the service quality. The ratio of total number of hot spring visitors per day to number of staff on shift is approximately from the minimum of 4 to the maximum of 7 with an average level of 5, which means every staff on shift takes care of 5 hot spring visitors. If the ratio is too high, it may affect the quality of service and the experience of hot spring visitors. However, if the ratio is too low, it may be an indicator of over-staffing. Thus, an appropriate amount of on shift staff is important. Ticket Sales is the largest income source of hot spring facilities at the participating hotels, accounting for around 56 percent of total hot spring revenue. As mentioned previously, apart from in-house guests, walk-in travellers take up the majority of hot spring demand at the participating hot springs and enable the properties to receive a large cash flow by selling tickets. Spa treatment is one of the most popular services going well with hot springs. A good portion of visitors prefer to have spa treatment and massage after hot spring soaking for relaxation and enjoyment. Spa treatment is ranked as the second largest revenue source, contributing around 15 percent of overall revenue. Food and beverage revenue takes up around 9 percent of the pie, followed by the revenue sourced from private pools rental at 6 percent and retail sales at around 5 percent. EXPENSE COMPOSITION The following chart illustrates the expense composition for the hot spring facilities of the participating hotels: 其他总支出 All Other Expenses, 38% 薪金及有关支出 Payroll & Related Expenses, 32% 销售成本 Cost of Sales, 29% REVENUE COMPOSITION The chart below presents the revenue composition of hot spring facilities at the participating hotels: 其它零售 Others, 9% Retail Sales, 5% 餐饮 Food and Beverage, 11% 私人泡池出租 Private Pools Rental, 4% 水疗, 按摩 Spa Treatments, 15% 温泉门票销售 HS Ticket Sales, 56% In general, total departmental expenses took up approximately 48 percent of the hot spring revenues that resulted in the departmental profit at around 52 percent as a percentage of total revenues. Cost of sales and payroll and related expenses are responsible for approximately 29 percent and 32 percent of the total expenses respectively. All other expenses accounted for a larger portion of the total operating expenses for the hot spring facilities at the participating hotels, representing approximately 38 percent of overall expenses.

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14 HHTL UPDATE NEWS 2012 CHINA HOTEL DEVELOPMENT AND FINANCING CONFERENCE The China Hotel Development & Financing Conference aims to provide the most comprehensive analysis of industry data and discuss the latest trends for the hotel industry in China to keep all delegates abreast and up-to-date. The conference has grown from strength to strength and in 2011 attracted over 600 delegates, including owners, developers, corporate management from hotel companies, lawyers, architects, interior designers, investment bankers and consultants. The upcoming 8 th annual conference will again be held at the Crowne Plaza Sun Palace Beijing from Wednesday 21 st March to Friday 23 rd March, You may visit the website to get update conference program and know more about the invited speakers. For more information on sponsorship and registration, please contact Michelle Xie on mxie@horwathhtl.com. CHINA HOT SPRING HOTELS SURVEY Horwath HTL, jointly working with the China Hot Spring Tourism Association, successfully published China Hot Spring Hotels Development Overview In this first year of survey, we have received 18 hotels responding, which are largely sourced from the more developed areas including Guangdong, Fujian, Jiangsu, Beijing and Yunnan. It is an importnant reference for hotel operators and investors to understand the dynamics of the hot spring tourism in China. For more information about this publication, please contact Linda Li on lli@horwathhtl.com. CHINA HOTEL INDUSTRY STUDY SURVEY For the 10 th consective year, the China Tourist Hotels Association (CTHA) and Horwath HTL will again jointly launch the 2012 China Hotel Industry Study Survey. This landmark study was the first authoritative market, financial and operating study published in China and in 2011 it incorporated data from over 650 hotels. The survey will be launched soon, for more information about the survey, please contact Li Wen on lwen@horwathhtl.com. HORWATH HTL GLOBAL MARKET SENTIMENT SURVEY 2012 Horwath HTL is again undertaking a Hotel Market Sentiment Survey to assess hoteliers outlook for In July 2011, when we undertook the survey, we had about 200 hotels participate right across the country. The China Market Sentiment Report was distributed to all the participants and will again be distributed at the completion of this survey. For more information about the survey, please contact Yuanyuan Han on yhan@horwathhtl.com. ABOUT HORWATH HTL Horwath HTL (Asia Pacific) is the regional arm of Horwath International s Hotel, Tourism and Leisure Group. As a Horwath International member, we are part of a professional association of accounting and management consulting firms originated in New York in 1915 and currently ranked among the top ten international professional service groups with office in 387 cities in 100 countries and an annual combined turnover in excess of USD 2 billion. The major services provided by Horwath HTL include: Market & Financial Feasibility Studies Hotel Operator Selection & Contract Negotiation Destination and Large scale Project Masterplanning Asset Management Strategic Management and Planning Due Diligence

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