CBRE Hotels presents Vietnam Hotel Market Overview Presented by Robert McIntosh Executive Director, CBRE Hotels, Asia Pacific 23 September 2009
Presentation Outline 1. Hotel Performance Regional 2. Hotel Performance - Vietnam 3. How to Maximise Returns 4. Management Options 5. Future Opportunities CB Richard Ellis Page 2
Hotel Performance - Regional Vietnam has one of the smallest visitor arrival per capita ratios in the region Visitor Arrival Per Capita 2.0 1.8 1.6 1.4 1.2 1.0 0.8 0.6 0.4 0.2 0.0 2.087 0.795 Visitor Arrivals Per Capita By Country (2008) 0.217 0.050 0.034 0.027 Singapore Malaysia Thailand (07) Vietnam Phillipines Indonesia Source: Asian Development Bank, Independent Country Estimates Country CB Richard Ellis Page 3
Hotel Performance Major cities and resort destinations across Vietnam are expecting an increase in hotel supply over the next few years 1200 1000 800 Future Hotel Supply - Hanoi & HCMC (Under Construction) Rooms 600 400 200 Source: CBRE 0 2010 2011 2012 Hanoi Year HCMC CB Richard Ellis Page 4
4 and 5 star Hotel Performance Regional Occupancy levels have declined rapidly since June 2007 Occupancy (MAT) 90% 85% 80% 75% 70% 65% 60% 55% 50% Singapore Thailand Indonesia Philippines Vietnam 45% Jun-07 Dec-07 Jun-08 Dec-08 Jun-09 Source: STR & CBRE Hotels CB Richard Ellis Page 5
4 and 5 star Hotel Performance Regional but ADRs have demonstrated strong growth Average Daily Rate (MAT) United States - Dollar 250 200 Singapore 150 100 50 Thailand Indonesia Philippines Vietnam 0 Jun-07 Dec-07 Jun-08 Dec-08 Jun-09 Source: STR & CBRE Hotels CB Richard Ellis Page 6
4 and 5 star Hotel Performance Regional ensuring RevPAR levels remain above that of many regional competitors 180 160 RevPAR (MAT) United States - Dollar 140 120 100 80 60 40 20 Singapore Thailand Indonesia Philippines Vietnam 0 Jun-07 Dec-07 Jun-08 Dec-08 Jun-09 CB Richard Ellis Page 7
Hotel Performance - Regional Asia Pacific hotel sales (volume) declined 69 percent in the past year, to reach a total of US$ 2.6 billion in 2008 (Q32008 to Q2 2009), down from US$7.5 billion in the preceding period. 5,000 Hotel Sales - Asia Pacific (Total Volume) 4,000 US$ Millions 3,000 2,000 1,000 0 Source: Real Capital Analytics, CBRE Hotels 07Q2 07Q3 07Q4 08Q1 08Q2 08Q3 08Q4 09Q1 09Q2 Quarter With falling incomes and demand values have dropped. Initial yields have often not have fallen much. CB Richard Ellis Page 8
Hotel Performance Vietnam The number of hotel sales in Vietnam has dropped in 2008 as a consequence of lack of liquidity and concern about future performance. In 2009, lower prices, additional liquidity and more stable economic conditions have helped increase the sales volume. Major Hotel sales in Vietnam (tot volume) $(million) 400 300 200 100 0 3 8 2005 & 2006 2007 2008 2009(two quarters) 1 3 CB Richard Ellis Page 9
Hotel Performance Vietnam The market experienced the highest transacted price per room at the end of 2007. $400,000 Vietnamese top-end hotels transacted price per room (average) $300,000 $200,000 $100,000 $0 2005&2006 2006&2007 2007&2008 2008&2009 CB Richard Ellis Page 10
Hotel Performance - Vietnam International visitor arrivals to Vietnam have grown rapidly over the past few years, but will have problems reaching the VNAT target International Visitor Arrivals (2005-2008) 6.0 5.5 5.0 4.5 Millions 4.0 3.5 3.0 2.5 2.0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2010f Year CB Richard Ellis Page 11
Hotel Performance - Vietnam Visitor numbers have declined since the onset of the global financial crisis Visitor Arrivals to Vietnam by Purpose 300,000 250,000 Visitor Arrivals 200,000 150,000 100,000 Tourism Business Other 50,000 - Jan-07 Apr-07 Jul-07 Oct-07 Jan-08 Apr-08 Jul-08 Oct-08 Jan-09 Apr-09 Jul-09 Month with visitor numbers in the first 8 months of 2009 declining by 19.7 percent compared to the same period in 2008 CB Richard Ellis Page 12
Hotel Performance - Vietnam Resulting in strong improvements in overall hotel performance until the onset of the global financial crisis 50% Vietnam Hotel Performance Vietnam - Dong (Month on same month previous year) 40% 30% 20% 10% 0% -10% -20% -30% -40% Jul-07 Jan-08 Jul-08 Jan-09 Jul-09 ADR Change Occupancy Change RevPAR Change Source: STR& CBRE Hotels CB Richard Ellis Page 13
Markets in Detail HCMC All hotel tiers have suffered declining performance Monthly ADR 2009 - HCMC Monthly Occupancy 2009 - HCMC 240 75 US$ 220 200 180 160 140 120 % Occupancy 70 65 60 55 50 45 40 100 35 80 Jan Feb Mar Apr May Jun 30 Jan Feb Mar Apr May Jun Luxury 5-star High-end 5-star Top-tier 4-star Luxury 5-star High-end 5-star Top-tier 4-star CB Richard Ellis Page 14
Markets in Detail Hanoi Occupancy has declined more rapidly than ADRs US$ 170 150 130 110 90 70 50 30 Quarterly Average Daily Rate Q12008 to Q2 2009 - Hanoi Mar-08 Jun-08 Sep-08 Dec-08 Mar-09 Jun-09 Occupancy Quarterly Occupancy Q12008 to Q2 2009 - Hanoi 80% 75% 70% 65% 60% 55% 50% 45% 40% 35% 30% Mar-08 Jun-08 Sep-08 Dec-08 Mar-09 Jun-09 5-star 4-star 3-star 5-star 4-star 3-star CB Richard Ellis Page 15
Clear vision of what you want to achieve How to maximise returns? Operations Management Marketing Revenue sources Positioning Facilities Do your facilities match demand? What alternatives exist? How do they compare with the competition? CB Richard Ellis Page 16
What do you want out of a manager? Management Options Generate business Marketing Room rates Business management efficiently HR Training Financial capacity- reliability How do you maximise outcomes? CB Richard Ellis Page 17
Management Options There are four main options: Self-manage Management Contract Franchise Lease Question: Do you really have the skills to manage a hotel business? Is it best left to experts like a pilot flying a plane do you want to risk crashing and burning? CB Richard Ellis Page 18
Management Options Self Manage Key Issues Full management control No fee payment to external management company/brand (all profits are retained by owner) Less exposure to global distribution systems Less recognisable brand Risk of poor cost control. Risk of inefficient marketing strategies. CB Richard Ellis Page 19
Management Options Management Contract Key Issues Image/branding Market recognition Expert management costing control Expert management higher room rates/ occupancy Global Network Additional costs : Technical assistance and pre-opening fees Base Management fee from 2% to 4% of Total Revenue Incentive fee from 5% to 12% of Gross Operating Profit Contribution to central and chain marketing expenses Operator system fees CB Richard Ellis Page 20
Management Options Management Contract Vital to have the appropriate manager/brand for the hotel Case study Example of a manager of too high a quality Disappointed guests Lack of occupancy Costs far too high Capital expenditure increased Change to a new manager Higher guest satisfaction and greater occupancy Able to access more appropriate markets and guests Lower costs per guest Improved profitability CB Richard Ellis Page 21
Management Options Management Contract Key Issues to consider when negotiating a management contract Budget, accounts, working capital Owner s approval of budgets, appointment of GM and Financial Controller Restrictions on competitive use of the brand name Performance criteria Asset Management Length of term Fees Restrictions on development, exclusivity Replacement reserves Termination CB Richard Ellis Page 22
Key Issues Use of brand/trade name Management Options - Franchise Marketing and global distribution systems Established business systems Established operational systems Access to market intelligence Assistance with site location, building design, training Additional costs Initial fee (Commonly $10,000 to $50,000) Royalty Fee (Commonly from 5% to 12% of the room revenue) Reservation Fee Advertising or marketing fee Frequent traveller fee (Loyalty programme) CB Richard Ellis Page 23
Management Options Lease Key Issues Certain income No management involvement Much of the profit is kept by the lessee Limited upside No available tenants as the risk is too great Typical lease agreement Typical lease term 10 to 25 years Lease payment (fix or fix + % of GOP) CB Richard Ellis Page 24
Future Opportunities Vietnam is supported by strong market fundamentals: Strong cultural offering Diversity of destinations Relatively safe and secure Geographical location within the region Increasing international and domestic tourism demand Strong investment potential CB Richard Ellis Page 25
Future Opportunities Opportunities exist: Diversity in hotel brands and styles Diversity of locations and target markets Destination marketing and coordination Business and regulatory environment Visa system Infrastructure CB Richard Ellis Page 26
Future Opportunities Hotel Differentiation Opportunities for Hotel Investments Targeted development catering to different market segments Budget hotels Resorts Boutique Hotels Hotels in industrial parks Building conversions Greenfield no longer hot, but may have long term potential CB Richard Ellis Page 27
Future Opportunities Hotel Differentiation Market characteristics: Price, product, service Shift from luxury to budget Low cost airlines Rise in domestic tourism Local, regional and international demand Tourism and business CB Richard Ellis Page 28
Future Opportunities Hotel Differentiation Physical Characteristics: Number of rooms Average room size Staff to room ratio Restaurants Bar Banquet/Meeting Breakfast Gymnasium Pool Cable TV Business centre Wireless internet 24-hour reception Retail outlets Location CB Richard Ellis Page 29
Future Opportunities Hotel Differentiation Internationally Branded Hotel Characteristics Characteristic Budget 5*City 5*Resort Boutique No. Rooms 100-500 200-500 250-400 <100 Room Size m 2 12-16 30-45 30-50 Vary F&B 0-2 4-10 4-10 1-4 Gym Maybe Yes Yes Maybe Spa Maybe Yes Yes Maybe Swimming Unlikely Yes Yes Maybe Staff/Room Ratio Location 0.5 1 2 2 Airport, outer CBD, industrial Airport, CBD Beach/mountains urban resort Inner city, cultural & resort location Guest Profile Mix Mix Leisure/MICE Leisure/Corp CB Richard Ellis Page 30
Resort Hotels Prime focus: leisure, recreation and relaxation. Location: Island, beachfront, mountains, cultural areas. Target clientele: Larger resorts = group leisure, MICE, FIT. Small resorts = FIT seeking luxury and privacy Typical Facilities: Rooms Villas Recreation Function F&B Typically extensive, with no requirement to leave resort Health club/spa Trends: Branded condo resorts, spa resorts, urban resorts. Costs Performance Vietnam market Shortage of international branded resorts Airports expansion (Nha Trang, Phu Quoc ) Road systems improvement (Mui Ne, Vung Tao, Hai Long Bay) Increasing local demand for high quality resorts New Island developments (Con Dao Island) CB Richard Ellis Page 31
Hotels in Industrial Parks Prime focus: corporate Location: in proximity to industrial hubs Target clientele: junior to middle management business executives Typical Facilities: Rooms - small Recreation - limited Function meeting rooms F&B basic, but may extend if location generates a captive audience Costs Performance Vietnam Market: Severe shortage of hotels in industrial parks 118 Industrial parks in the South Vietnam* and no four star hotels 40 Industrial parks in North Vietnam* and 1 four star hotel Growing industrial production in Vietnam and Industrial parks Growing number of IPs located far from the cities hub. * Major industrial areas. CB Richard Ellis Page 32
Boutique Hotels Prime focus: High degree of individual character and design, Location: CBD, cultural and trendy locations Target clientele: FIT and Corporate seeking a different experience than that offered by many large scale hotel chains. Typical Facilities: Site: often located in converted historic buildings Rooms - vary Recreation often limited Function limited if at all F&B a small number of specialty restaurants and bars Costs Performance Vietnam Market Limited number of real boutique hotels in Vietnam CB Richard Ellis Page 33
Summary Hotel Performance Regional and Vietnam How to maximise returns Management Options Property selection and positioning Future Opportunities A final thought: It needs vision, a clear view of the market and real expertise to develop, own, operate and finance hotels. Decide where your skills lie and seek advice from experts (hoteliers, lawyers, architects, bankers or even real estate consultants) for the other matters. CB Richard Ellis Page 34
CBRE Hotels services Valuation and Advisory Service Sales Feasibility Studies and Market Study Investment Advisory Operator Selection Asset management Project management CB Richard Ellis Page 35
ROBERT MCINTOSH, Executive Director CBRE Hotels Singapore PH:+65 6326 1200 Mobile:+65 8123 0208 Robert.McIntosh@cbre.com KEY CONTACTS MAURO GASPAROTTI, Manager Hotel, Valuation and Advisory Services CBRE Vietnam PH:+848 242 6125 Mobile:+84 903 028 722 Mauro.Gasparotti@cbre.com CB Richard Ellis Page 36