ACQUISITIONS

Hotel operator Magnificent Estates sees upside to Hong Kong tourist slump

Magnificent Estates sees opportunity to look for buyout targets

PUBLISHED : Wednesday, 29 April, 2015, 2:00am
UPDATED : Wednesday, 29 April, 2015, 2:00am

While hotel operators are struggling to lure back tourists as the industry faces its first big slump after an 11-year boom, cash-rich medium-tariff hotel owner Magnificent Estates is looking to expand through acquisitions.

The company owns and operates 2,300 rooms in seven hotels largely in prime locations such as Causeway Bay and Tsim Sha Tsui, enabling it to weather the tourism crisis.

Chairman William Cheng Kai-man sees the opportunity to expand at a time when the market is in a downward cycle.

"Previously, owners were not interested to sell at all," Cheng said. "We absolutely will have more opportunities to buy than before."

With a cash reserve of HK$1.3 billion and HK$2 billion in undrawn loan facilities, the company is ready to increase its hotel rooms to 3,000.

Owing to fierce competition driving up asset valuations, Cheng said the company failed in bidding for several properties in Hong Kong and London.

Last week, Magnificent was one of 21 developers which expressed interest in the Urban Renewal Authority's first hotel development in Tai Kok Tsui. The 200-room hotel site also attracted Sun Hung Kai Properties, Wheelock Properties and Sino Land.

"It shows big companies also see the great potential for hotels in a good location," Cheng said.

Magnificent's hotel portfolio includes three properties under the Best Western brand and two under Ramada. It also operates the Grand City Hotel near the Sai Ying Pun MTR station and the Magnificent International Hotel in Shanghai.

Brushing aside the recent sharp fall in mainland Chinese group arrivals, Cheng said its hotels in prime locations would be more resilient to market doldrums.

"Hotels in preferable locations still manage to achieve nearly 100 per cent occupancy if pricing is more realistic. But those in undesirable locations such as Tsuen Wan, Kwun Tong and Tsing Yi will find it hard to fill up even 50 per cent of their rooms," he said.

The dramatic change in the market has left hotels in non-tourist locations in trouble as they relied heavily on mainland group tours, he said.

The number of mainland Chinese group tours has fallen by 80 per cent in the past 12 months after China's ban on "zero-fee" shopping tours in late 2013.

The industry was further hurt by the recent escalation of anti-parallel trader protests, which scared off travellers from across the border, Cheng said.

Adding to the industry's woes were the strong Hong Kong dollar and the move by Japan and South Korea to ease travel visas to lure tourists from China, he said.

The market is now dominated by frequent individual travellers and corporate clients who prefer to stay in hotels in prime locations rather than industrial areas, according to Cheng. "[Investors] planning to build a hotel outside the city centre should think three times before doing it," he said.

In C-Suite, Cheng tells how he is dealing with the market changes

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