REIT AsiaPac

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Asian Hospitality – Undervalued But Not Out Of The Woods

The major drag on the tourism recovery has been China, which made up some 15%-30% of 2019 visitor arrivals for many Asian countries.

Nov 7, 2022 – Many Asian countries have reopened their borders to international travel and dropped most COVID-era travel restrictions. Hotel rates and occupancy are up, but for the most part, still significantly lower than levels in 2019.

Travel does not depend on unilateral policies but is bilateral in nature. The major drag on the tourism recovery has been China, which made up some 15%-30% of 2019 visitor arrivals for many Asian countries. Persons entering (or re-entering from a trip overseas) China are subject to a 7 days central quarantine + 3 days home quarantine period, which puts a damper on most travel plans.

Chart – visitor arrivals from China as a percentage of the total (pre-COVID)

Source: Statistica, country tourism agencies

The higher cost of travel has meant that business travel, along with the luxury and upscale segments that are less price sensitive, has seen a more significant recovery than the mid-market segment to date.

That said, many hospitality operators and REITs in Asia Pacific are trading at some 30%-50% below book value for the most part, noticeably down from 2019.

Table – Price to book ratio of selected hospitality counters

CounterStock ExchangePrice/Book
Elanor Investors GroupASX0.59
Grande Asset Hotels & PropertySET0.49
Laguna Resorts & Hotel Public Co LtdSET0.56
Hui Xian REITHKEx0.21
Regal REITHKEx0.23
Regal Hotels International HoldingsHKEx0.17
Sino Hotels HoldingsHKEx0.47
The Hong Kong & Shanghai HotelsHKEx0.29
Shangri-La AsiaHKEx0.37
Amara Holdings LtdSGX0.48
ARA HtrustSGX0.52
Banyan Tree Holdings LimitedSGX0.49
Far East Hospitality TrustSGX0.67
Frasers Hospitality TrustSGX0.68
Hotel Grand Central LtdSGX0.56
Mandarin Oriental International LtdSGX0.66
Japan Hotel REIT Investment CorpTSE1.59
Imperial Hotel, LtdTSE3.09

Source: Bloomberg

As China reopens, counters in Singapore, Japan and Australia have recovered more than counters with higher exposure to China. As China reopens and the travel environment normalises, such ‘COVID discounts’ should normalise over time.