The Hongkong And Shanghai Hotels, Limited – A Potential Proxy To China’s Reopening
The hotel chain’s performance could shed light on how China’s reopening could impact hospitality REITs.
Dec 5, 2022 – Best known for the Peninsula Hotel chain, The Hongkong and Shanghai Hotels, Limited derived over 70% of revenue from the hotel segment pre-COVID. Anchored in North Asia with hotels in Hong Kong, Shanghai, Beijing and Tokyo, the company has grown globally with a presence in Southeast Asia and the U.S., as well as a hotel in Paris. Hong Kong has historically been the most significant single geographic contributor to revenue.
With Hong Kong being the country most exposed to China’s COVID policy, Hongkong and Shanghai Hotels would be a prime beneficiary of the country’s reopening from the COVID pandemic.
The company owns real estate and distributes income, like a REIT, save for not subscribing to the REIT framework. Hong Kong does not give as many tax breaks for REITs, and so many landlords have no incentives to convert, unlike Singapore.
Hong Kong and Shanghai Hotels’ financial performance in the next few months would offer signs that show the impact of China’s easing of its zero-COVID policy. Before COVID, Chinese mainland tourists accounted for up to 78% of the visitors to Hong Kong.
The company’s revenue and profits in the first half of 2022 have already materially improved from the same period a year ago. However, given that the company continues to operate at a loss, its stock is trading at a significant discount to book value. This provides upside potential if China’s reopening further improves financial performance.